It was in early February that the price of bitcoin broke above $10,000 level. When it happened, on-chain analyst Willy Woo said that was the “real deal”.
“Fundamental investment activity is backing this $10k breakout,” Woo said at that time.
However, since then bitcoin has been tumbling down, going as low as $7,230 on Monday. Now, in his latest update, Woo said that he was “totally wrong” on making the call that “no chance this a top” at that time.
“The market right now, crypto and traditional, is undergoing a black swan,” said Woo.
An unpredictable event that is not normally expected and has potentially severe consequences is a black swan. The coronavirus (Covid-19) and then oil price war that has been affecting the global markets have been hitting crypto markets extremely hard as well.
While stock markets are having the worst days since the 2008 financial crisis, the gains bitcoin has been making has also come to a crashing halt as coronavirus hits the global markets. Currently, BTC is trading at $7,320 down 4.70% while altcoins are enjoying much higher drops.
In the short term, the bitcoin market is not looking good despite seeing a jump earlier in the day.
“This is a chart of on-chain “investor activity” right now. Long term looks solid. Short term is very weird, normally it’s smooth oscillations, not anymore, it’s like something hit it (COVID19?), it’s fizzing out. Waiting for this to reverse before we put in a bottom. Maybe soon,” said Woo.
According to Ryan Selkis of Messari, the macroeconomic environment is bullish for bitcoin in the middle-to-long term but in the short term, it’s preparing for “continued downward price pressure” due to the liquidity crunch.
In about two months, we will also witness the third bitcoin reward halving that happens once in four years that will cut down the block rewards in half, meaning “Bitcoin’s security budget will drop 50% overnight.”
A historically bullish event, this could prove to be a problem for miners as while the bitcoin reward to mine every block will be cut in half, the hash rate of the network continues to increase while the price stays bearish.
Basically, a whole lot of miners will be competing for a substantially smaller pool of revenue.
“This dynamic becomes very consequential as financial markets worldwide nosedive. Bitcoin miners will not only face margin pressure from new issuance being halved, but could also face margin pressure from a coronavirus induced drawdown, amplifying the effects of the halving. If this is indeed the case, the effect on miners will be enormous.”
Halving would mean not every miner will be able to survive, “only the most profitable and well-capitalized miners.”
Those that are over-leveraged and not competitive will bear the brunt and those that sought to add capacity fast to chase the halving rally at the expense of competitiveness, “will be punished,” Melkis said.