What Caused Bitcoin’s Worst Crash in 7 Years?

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In the past 7 years, this was the worst drop suffered by Bitcoin that fell to $3,850. Historically, 37.53% loss was the third-largest drop after 38.67% in 2011 and 48.57% in 2013.

This loss resulted in Bitcoin’s market value to realized value (MVRV) falling below 1 and only 44% of Unspent transaction output (UTXOs) being in profit. The Net unrealized profit/loss (NUPL) also went into capitulation.

This has the volatility going above 7%, a level not seen since 2014. The daily trading volume also skyrocketed amidst the sell-off. Over $4 billion changed hands on March 12 with the 7-day average volume jumping to $1.5 billion.

The downturn in the crypto market, however, has been going on for over a month now in line with the stock market. As such, the 90-day correlation between the BTC price and S&P 500 after the recent price drop went from 0.1 to over 0.5.

Whales Dumped Bitcoin?

The markets have already been suffering from the fear of rapidly spreading pandemic, coronavirus (Covid). From the stock market, bitcoin to typical safe haven assets like gold and treasuries, everything took a hit.

But things went haywire in the crypto market when the price fell to $8,000 level on March 12 and massive sell-off took place. According to Arcane Research, there have been large amounts of bitcoin transferred to exchanges prior to this sell-off.

PlusToken, the $2.9 billion pyramid scheme that has been still holding 61,229 BTC transferred 13k BTC from its wallets to exchanges through mixing services over the last weekend.

Historically, transfers from its wallets coincided with large widespread sell-offs just like the one we experienced this time. Bitcoin price plunged from $9,000 to $7,500 following this wallet transfer.

13,000 bitcoins that were sent to cryptocurrency exchanges are likely to be sold off as the selling persisted over a longer time frame.

Besides PlusToken, an old mining wallet that dates back to 2010 sent 1000 BTC to 55 different exchange wallets on March 12. Soon after this, Bitcoin price plummeted from $8,000 to $7,500 which could have been behind the third-worst trading day in bitcoin’s young history.

BitMEX liquidations hit the market

These whale movements, however, are not the only culprit, as a matter of fact, according to some BitMEX liquidations could very well be the real perpetrator.

On Thursday, the crypto derivatives exchange liquidated $76 million during the massive sell-off, which has been its largest liquidation rate ever. Over that night, more than $300 million were also liquidated that stopped only after BitMEX went down for maintenance due to “hardware issues.”

This halt was a blessing for the leading digital currency as the price of bitcoin jumped right after to $5,200. Currently, BTC/USD is trading at $5,470, down 28% in 2020.

Cash is the Only Safe Haven During Panic

While bitcoin developer Jimmy Song feels this violent sell-off has been the “flip side” of “institutions buying Bitcoin,” Galaxy Digital’s Mike Novogratz doesn’t believe so.

“That wasn’t institutions. That was a leveraged washout. Institutions aren’t fast enough to sell like that. That was panic selling from people who bought on margin,” said Novogratz.

In the currently risk-off global markets, even gold has been selling like crazy, experiencing its largest weekly loss in eight years.

As bitcoin enthusiast Ari Paul notes, “during standard panics, *everything* sells off except cash. That’s because people want the stuff that lets them buy food and pay rent. Fear = everything falls except cash.”

So, does that mean Bitcoin isn’t a safe haven asset? It is but bitcoin “does well when people *fear cash* – when they fear inflation/depreciation,” and not during economic turmoil when everyone is looking to get their hands on cash.

The deflationary asset Bitcoin is “more valuable as a seizure resistant asset,” a hedge against the central banks.

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