Bitcoin Sell-off Just Leveraged Investors Trying to Get Hold of Cash Just Like Gold?

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Losing 8.5% of its value in February, Bitcoin price wiped out all the gains it made last month this week. We started the month at about $9,400 but ended it at just above $8,600.

Today, Bitcoin went down to $8,410. At the time of writing, BTC/USD has been trading at $8,500, down 2.11% in the past 24 hours while managing the daily trading volume of $633 million.

The ongoing sell-off has the Fear and Greed Index falling to 39, a level not seen in almost two months. The volume also took a hit, dropping down to a new 2020 low at regulated platform CME. On spot exchanges as well, yesterday we were as low as $275 million.

However, the low volume has a good thing to say about the current market condition as it “determines the strength of the signal.” On comparing the volume of February month to July 19, Trader Big Ched found that “this is a consolidation candle, not reversal candle.”

Currently, trader Crypto Michael is watching green zone around $8,300-8,400 for support and upper resistances at $8,950 and $9,150.

Gold Sell-off along with the Stock Market, a Poor Haven?

Bitcoin’s negative performance came during the time when the market is conerned about the impact of coronavirus (Covid-19) that has the investors running out of the stock market that saw its biggest weekly drop since 2008 and pile into traditional safe haven gold which climbed to new 7-year highs.

However, one thing worth noticing is gold also plunged on Friday. Gold’s sell-off as risk assets came under pressure was by leveraged money managers because of margin calls.

“Basically, the idea is that they need to get their hands on cash to prevent their leveraged positions being stopped out, and sell anything to get hold of cash,” said Bloomberg writer Ed van der Walt.

Back in 2008 gold got sold off along with most other asset. So, does this mean, gold is a poor haven?

“No. During the later phases of a sell-off, when central banks start easing, the metal really comes into its own. That’s what drove it to >$1,900 post-2008. And that makes me think my end of year target may be low,” said Ed van der Walt.

What about Bitcoin then?

This week Bitcoin fell along with stocks. According to Galaxy’s Mike Novogratz when things get very bad, investors take leverage down and take their profits as well.

Bitcoin “is not a safe haven because it goes up when there is global instability,” notes Arcane Research. According to them, bitcoin’s two unique properties; being uncorrelated and censorship-resistant are what make it a safe haven.

Negative correlation in itself is of no value because it can be easily created by short-selling assets. But an uncorrelated asset is also unique, which makes bitcoin as an asset class suitable as a safe haven.

“A safe haven that is neutral to every asset class, that has its own distinct value drivers and reacts to news and changes around the world differently than other assets. Bitcoin doesn’t follow gold, stocks, bonds or any other asset. This leads to an asset that is great as a tool for diversification of an investment portfolio,” said the authors Torbjørn Bull Jenssen & Bendik Norheim Schei.

In today’s envrionment, most assets are correlated which “might drive demand for uncorrelated assets in turbulent times.”

However, for an asset to be really a global safe haven asset, it needs liquidity, censorship resistance, and low credit risk. The main issue with the world’s leading digital asset is limited liquidity which has been rapidly becoming a non-issue as bitcoin trades all over the world without stopping, 24x7x365.

Bitcoin allows one to buy an asset that always represents the same value as the market price, with no uncertainty on what the asset’s underlying is.”

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