Bitcoin’s dramatic collapse on Thursday left many searching for answers. Such a capitulation is almost unprecedented, certainly to those who joined the space during the 2017 bull run, but to those who were around in January 2015 it may have stirred some memories. This was the last time Bitcoin saw so much selling on one day, and it just so happened to mark the end of the 2014-15 bear market.
Is it possible that Bitcoin’s flash crash to $3,850 is the final shakeout and we can finally start the bull market, or are there other factors at play that might prevent that?
2015’s Capitulation Candle
On January 13-14, 2015, Bitcoin crashed 43% from $267 to $152 in a little over 24 hours. This drop came off the back of a 13-month bear market which had seen it hit highs of $1,165. The crash was accompanied by much handwringing and headlines as the last few hodlers capitulated:
What many didn’t realize at the time however was that this drop would represent the absolute bottom of the bear market and, following almost a year of recovery and accumulation, the price began once more to rocket, leading directly to the 2017 bull run.
Margin Trading Platforms Unwelcome Influence Laid Bare
So can we expect something similar this time round? Unfortunately things are a lot more complicated in 2020. Firstly, we have the advent of margin trading which wasn’t around, at least in anything like the same capacity, as it is now.
Margin trading really took over the Bitcoin world during 2018 when it became the only way to make money in the bear market, leading to leverage-enabled platforms like BitMEX becoming more powerful than regular ‘spot’ buy/sell exchanges and having the potential to influence price action.
This seems to have been the case in last week’s crash where BitMEX’s liquidation mechanism was acting to push the price of Bitcoin down:
2) Evidence: (a) BitMEX went down and then crypto recovered. (b) their liquidation engine was lethargic
— SBF (@SBF_Alameda) March 13, 2020
BitMEX and some other leverage exchanges were taken offline for ‘maintenance’ during the crash last week, to which Bitcoin responded by bouncing back up again. Of course, the platforms denied having any impact on the price action, but the timing of the incident is damning, and shows the level of influence that margin trading platforms have in the space – influence that wasn’t around in 2015.
The second difference between today and 2015 is that of external manipulation, which is somewhat linked to the margin trading issue. Specifically however we’re talking about the Wall Street crowd who, in December 2017, colluded with government officials to burst the Bitcoin bubble through the Cboe and CME futures platforms.
The launch of Cboe and CME futures was akin to the school bully entering the playground, pushing everyone around and dominating everything. As we saw with gold, these big players will do all they can to grind an asset into the ground in order to buy it up cheap, then pump it up and sell at the top.
They started this practice in 2017 and, some say, have continued to do it ever since. Therefore, can we really say that $3,850 is the absolute bottom, knowing that these cartels have it in their power to grind it lower?
Finally, the huge difference between today and 2015 is the presence of the coronavirus, which is having a devastating impact on world markets. Bitcoin has clearly not been immune, and with every passing day bringing with it more warnings of a global recession, we really have no way of knowing just how bad things are going to get around the world before they begin to improve.
Interestingly, the CME announced on Thursday that their trading floor would be closed the following day due to the coronavirus outbreak. Could this action have forced them into using the fear and panic in the markets to drive down the prices in one final act of price manipulation, knowing that they wouldn’t be able to act between Friday and Monday, potentially even longer?
There Could Be Trouble Ahead…
Bitcoin’s flash crash in 2015 was almost solely down to hodler capitulation – the final shakeout before the next bull run could begin. What is becoming clear with Thursday’s crash is that this is a very different situation. Fear and panic set the ball rolling, possibly aided by continued price manipulation, with leverage trading platforms exacerbating the move.
From this we can conclude that the capitulation wick we saw on Thursday likely was not that of hodlers throwing in the towel, but margin traders getting liquidated over and over again until the platforms pulled the plug.
Combine this with the continued fear in the markets about the world economy in the wake of the coronavirus outbreak and it is hard to shake the idea that we are yet to really find the bottom in the Bitcoin market.
There will be plenty who sold at the bottom on Thursday, and it is tempting to compare the charts of 2015 with 2020 to look for similarities, but the fact remains that we are in the middle of a black swan event which is yet to really take hold in the West, with the potential for a full on recession once the immediate threat is over.
For those reasons, it’s pretty evident that Bitcoin’s real bottom could be waiting to bite.