Brace yourselves as more bitcoin (BTC) flash crashes are coming in this new bull market, a crypto investor and entrepreneur warned. “Too much leverage” on crypto derivatives exchanges combined with low liquidity levels and “inexperienced traders” crashed the market this past Sunday, according to him.
“The Bitcoin price always comes back fairly quickly, so if you see it happen it’s actually a chance to make quick money. … We will see this kind of crashes more often now that a new bull market has started. HODL on,” Vancouver-based Dutch tech entrepreneur and crypto-focused venture capitalist Marc van der Chijs, who is also the founder of VC firm First Block Capital and publicly traded BTC miner Hut 8 Mining. He also founded First Coin Capital, an ICO advisory firm, that was acquired by Michael Novogratz-led Galaxy Digital in 2018.
In his Twitter thread, van der Chijs called the latest sell-off in bitcoin “a chain reaction” that started with one whale deciding to take profits as bitcoin hit USD 12,000.
According to the entrepreneur, many traders were already leveraged on the long side this weekend, as bitcoin had been highly bullish for several days. This also included “speculators” on derivatives exchanges like BitMEX, which offers up to 100x in leverage on bitcoin, van der Chijs said.
And when a “whale” decided to take profits by selling off coins as BTC reached USD 12,000, the small price drop that followed was enough for leveraged positions to get liquidated, van der Chijs said, adding that the thin liquidity at the time (Saturday night in America/Sunday morning in Asia) exacerbated the price drop created by the liquidations.
“This chain reaction basically led to a USD 1,500 fall in the BTC price within 10 minutes,” the crypto investor added, suggesting that this might not have happened had it occurred during a time with more liquidity in the market, or at a time when fewer traders were already leveraged on the long side.
9/10 Lesson to be learned for people who don’t follow 24/7? Don’t be alarmed if BTC crashes all of a sudden, there is simply too much leverage in derivatives market and too many inexperienced traders are playing with money there. Do not sell!
— Marc van der Chijs – new account (@marcvanderchijs) August 2, 2020
Expressing a bullish view on the crypto market going forward despite the weekend sell-off was also Kelvin Koh of crypto hedge fund Spartan Capital, who said yesterday that “the market has changed” over the past 48 hours, and that we’re now headed into “the second half of this 3-year bull market which started in Jan 2019.”
“As new capital comes in, they go into the safer and more liquid large caps like BTC, ETH, and XRP first,” Koh said.
According to him, the bull market will likely cause the largest cryptoassets to make up for their underperformance relative to smaller DeFi tokens year-to-date, and that this rally will be led by ETH due to optimism surrounding the upcoming Phase 0 of ETH 2.0.
“Depending on how hard ETH runs, the successful launch of Phase 0 may culminate in a near term peak for ETH and other large caps,” Koh wrote. He added that the ETH rally will “run its course,” which in turn will cause capital to flow back into DeFi tokens again, triggering a new bullish wave in that part of the market that is “likely to be even more powerful than the first wave.”
Lastly, economist and crypto trader Alex Krüger called this weekend’s action in the markets “a blowoff top in ETH and BTC.”
However, a blowoff top doesn’t necessarily mean we have reached “the top,” Krüger said, adding that his bullish view on the “bigger picture remains unchanged.”
“Cryptoassets, in particular, are known to experience multiple blowoffs on the way up given the high use of leverage and how fragmented liquidity is. Saw that with $BTC both in 2017 and 2019,” he added.
At pixel time (13:16 UTC), BTC trades at USD 11,207 and is up by 1.4% in a day and 9% in a week. ETH is up by 7.5%, to USD 389. The price increased by almost 20% in a week.
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