Bitcoin and Etherium both took a dive this week causing many to panic.  However, do not fear.  They may be coming back before the weekend. Bitcoin dropped to nearly $30,000 while Etherium went down to below $2,000. Both drops can be explained.  

Fake News, media hypes, set stop-loss sells, and panic selling all start happening when influencers start the talk, media reports those “talks”, and hypes them to get readers to read their coverage, and followers these them seriously. 

Musk started the talk. He said he will no longer take Bitcoin to purchase Teslas. Media picked up on the talk and hyped it. Readers read the hype and small sellers started to spread the “News”. This started sales in mass from those who panicked. When investors started selling the price of Bitcoin tanked and as the price dropped, large investment funds price stop-loss setting was reached and more Bitcoin sold dropping the price even more.  Of course fund managers didn’t panic. They watched the price tank and waited for it to reach a bottom and start back up again.  If one looks at the chart

You can almost spot the places that these stop-loss triggers happened and buys took place. A sharp red line drop is a huge sale that could have been triggered by a stop-loss reached. This followed by panic selling and then a green candle of those purchasing on the down price.

Most researchers who know how markets function can look at the above chart and see that BTC is in an opportunity window.  BTC is the only Blockchain coin that has the limit of 21,000,000 set coins. So the supply is limited and as a demand increases and the supply is limited by the mining costs and halving causing fewer miners, the cost of BTC, in my opinion, has to rise. 

According to data from ByBit, a total of $2.4 billion worth of longs was liquidated in 24 hours as a result of the market crash caused by Elon Musk’s bearish Bitcoin tweets. Similarly, the total value of liquidated longs in the last 12 years is $1.16 billion. Long option calls offer a significant growth potential and investors realize gains when the market price rises above the strike price, i.e. the price that the option is exercised. There is also a premium that investors pay to purchase a long call, which is, actually, the cost of the option agreement. When investors expect or speculate a rise in the stock prices, they buy a call option or go long on that investment. Many buy these call options when they don’t have the money to buy the stock or , in this case, blocks of coin at the market price, and take a risk on the market going up or down. The option has a call date. As the date approaches panic may set in for the investor.

 After Musk was being interviewed, he stated in a Twitter post: “We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel,”  last Wednesday. He went on: “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at great cost to the environment.” People went wild and the market reacted. But later he back-tracked on the comments. He did not sell his Bitcoin holdings and some informed investors returned to the market.

In one 24 hour period, following these comments a total of 303,836 traders were liquidated, with the highest single liquidation order on Huobi, a crypto exchange, BTC worth nearly $90 million was sold. Of course the market would tank. The founder and chief investment officer of Miller Value Partners, Bill Miller unfazed by Falling BTC Price, Says Bitcoin Correction Is ‘Pretty Routine’. But then, can anyone trust a fund manager these days when they are always using their own logic to justify an investment decision? However, investors usually say “If I trusted an investment at a higher price, it’s safe to say I may still like it at a lower price.”  The buy low, sell high philosophy is shaking up the Bitcoin price. Believing in the hold may be the way to go to ride the market is it continues to reset itself. But only if you believe that BTC will continue to rise in value over time.


Note: I am not a financial advisor, nor am I licensed to buy or sell investments. Opinions stated here are my own and have no connection to any investment product or company.