Why the bitcoin price is falling over the weekend - another black weekend

19.04.2021 | auglovoi

Bitcoin has been rising steadily for a year now. However, it does not happen without corrections: sometimes the price on online exchanges decreases by a couple of percent, and sometimes, like yesterday, it can collapse by ten percent at once. In fact, three of the last four strong corrections happened at the weekend. Let’s find out what that is about.

April 18 - “Black” Sunday

On April 18, bitcoin price at online exchanges decreased 10% in just one hour. At the moment, the price fell below $52 000. However, quickly enough, some of the losses managed to recoup, and in 12 hours, price returned to a comfortable range between $56 000 and $62 000. It is the price that is economically and technically grounded now.

A number of experts attribute the beginning of such a deep correction to the problems of major Chinese miners. The flooding of a number of territories in the Celestial Empire led to the shutdown of electricity in several provinces at once. Accordingly, the first cryptocurrency mining equipment was left de-energized.

If you look at the ratio of the price graph to the complexity of the network, you can see an obvious correlation. The only thing is that it is usually miners who either introduce additional capacity or, on the contrary, shut down unprofitable facilities.

This was the case at the beginning of last year with obsolete ASIC devices. Back in 2019, many refused to use a number of past models, which even in areas with low electricity costs were not capable of generating profits. And by mid-2020, almost all of them were back in service. And while the price of second-hand units was extremely low, it is now even higher than new units at the time of release.

Thus, the only thing that could affect the price in the situation at hand was a significant drop in transaction speed. So the production of new units fell to about 100 units per day, when before the crash it was about 145 units. Many transfers lined up for confirmation, and fees in the network increased.

Leverage is a driver of volatility

How the use of leveraged capital can, even in relatively small transactions, accelerate the price in the short term was clearly seen by GameStop example. At the time, many institutional investors lost a total of several billion dollars.

Now most cryptocurrency online exchanges provide leverage from x5 to x125, which is quite a lot. Thus, a trader with only $1000 in his account can open a position for two bitcoins. If the price goes in the right direction, the profit will be a hundred times more, but the opposite is also true. Most importantly, if the investor has a chance to “sit out” turbulent times when buying without using leverage, then leverage automatically closes open positions. This is exactly what happened yesterday. Many traders have reported large losses. Not long ago, the exchange players were showing values on their accounts at profile forums, where they managed to earn $15 000 in a short period of time from $900, today the same traders are showing zero accounts.

News on unsupported “opinions”

Not everyone is yet able to see bitcoin as a technology rather than a pure financial asset. The first cryptocurrency is called digital gold because, analogous to physical metal, it is used not only for calculations and savings, but also for a number of other tasks. This is just not fully understood by “classical” economists. They consider the value of the first cryptocurrency only in terms of technical analysis, without understanding what underlies the entire cryptocurrency phenomenon.

A number of experts have expressed an opinion about the possible prohibition of bitcoin in the U.S., and this time, it is likely that a tweet by FXHedge, a fairly well-known account in cryptocurrency circles, led to the beginning of the collapse. It says that the U.S. Treasury Department intends to sue a number of companies for money laundering through digital assets. That’s just the U.S. law doesn’t allow this agency to bring charges, it’s in the Justice Department’s jurisdiction. Moreover, all investigations in this area are strictly secret and are conducted separately for each player.

What an ordinary investor should do

And ordinary investors should follow the biggest players in the cryptocurrency market. The biggest investors in digital gold are high-tech companies - Tesla and MicroStrategy. They are able to appreciate the advantage of using cryptocurrencies, which is why their purchases are only increasing. It can be said that Black Sunday, and all subsequent deep corrections, become excellent opportunities to buy bitcoin on online exchanges. This way you can not only make a profit, but also reliably save your savings from inflation.