Why Is Bitcoin Still Bullish Despite The Latest Market Crash?
Bitcoin has fallen by over 9% in just 1 hour and is down 20% from its all-time highs of $69,000. After consolidating above $55,000 throughout the last week, has the Omicron variant and the government’s stringent crypto reforms caused the largest crypto to fall under $50,000? Or is this a good opportunity to buy the dip and hold Bitcoin for the long term? Let’s find out.
On December 4, Bitcoin witnessed one of its biggest sell-offs of the year. The price of the biggest cryptocurrency in the world in terms of market cap plummeted by almost $10,000, in roughly one hour and over $15,000 from December 4 to 5. This caused the value of BTC to drop down to $42,000. Since then, BTC instantly rose and has taken support at the $45,000 mark. Over the weekend, the overall losses of Bitcoin were nearly 20%, the biggest one-day drop for the crypto coin since May 15, when Bitcoin plummeted down to $33,000 and dropped by over 30%. This single-day drop has resulted in Bitcoin wiping out all its profits from October after it made an all-time high of almost $70,000 in early November. This makes it a drop of over $25,000 in just 1 month for Bitcoin.
Most other cryptocurrencies joined Bitcoin in this loss too. The broad markets lost nearly 20% in 24 hours as well, which was a very unexpected turn given the consolidation that most coins were witnessing at the time. Ether, the coin linked to the Ethereum network also witnessed a fall of more than 10%, as it went down to around the $4,000 mark. The total market cap was badly affected for all the coins, as they fell by 15% to a value of $2.34 trillion. This is a huge loss, considering that the market cap had managed to pass $3 trillion last month following Bitcoin’s record highs.
The current market cap for Bitcoin has recovered since December 4, as it is currently trading just above the $48K mark as of December 6, according to Coinmarketcap. The coin has lost only 1.68% in the last 24 hours, another factor that may be concerning for the cryptocurrency leader. The overall market cap for Bitcoin is currently at $919 billion and since BTC has faced this big wipe-out over the last few days, its market dominance has been sinking as well.
Bitcoin’s Shrinking Market Dominance
Market dominance is basically the market cap percentage of one coin compared to the others. Bitcoin has been the leader of cryptocurrency ever since it was created in 2008, but there have been a few concerns after Bitcoin lost more than 10% in a few hours. Since market dominance moves lower as the price goes down, BTC has experienced a huge drop over the weekend. The coin’s market dominance has fallen below 40% and almost dipped to the lowest levels it has ever been. On Saturday, the percentage went as low as 38.32%, which was the lowest it has been since May when it was at 37.76%. Bitcoin’s dominance has been over 40% for the entire year, which is why the numbers are a bit worrisome.
Despite being the market leader with a total cap of $919 billion, these numbers were much higher a month ago, when its market cap was well past $1 trillion. In fact, many investors have also noticed this factor, which may be a signal for bearish momentum in the months to come.
Why Did Bitcoin Fall?
CNBC states that crypto markets took a nosedive along with the stock market’s plummeting numbers on December 3, and so, the crypto drop may be linked to large derivative induced selling. J.C Parets, the chief marketing strategist for All-Stars Charts technical research said that “The evidence points to this being yet another derivative-induced selling event. The September flash crash had the same drivers as this selloff — leverage was flushed from the system in violent fashion, which later enabled the market to eventually move higher toward a new all-time high in October”.
This notion has also been backed up in the crypto markets since there was a lot of selling in the BTC spot markets, which is an ETF that tracks the live price of Bitcoin. This selling resulted in a short squeeze of the derivatives market, which led to a massive downfall. Crypto exchange-traded fund expert and director of CEC capital, Laurent Kssis had the following to say: “So far I’ve seen upwards of 4,000 BTC being sold that pushed the market abruptly down”.
Financial Markets and Crypto Bills
The reason for this has been attributed to the overall view on financial markets being sceptical given the government’s plan for a new bill to tax cryptocurrency. Policymakers have passed a new infrastructure bill under the Biden administration which is calling for a larger look into the crypto markets. The U.S Federal Reserve under Jerome Powell is not looking to ban cryptocurrencies but is looking to tax them so the government gets a chunk out of all the profits reaped from the market. With this bill only recently being announced in November, and Powell being re-appointed by President Biden for another term, investors may have not had the best reaction and are looking to dump their assets.
The big crash was also caused due to the latest news of the new Omicron variant, which has been increasing across Europe and spreading to the rest of the world. Global equities and the US bond yields took a hit on Friday, as did US job growth in November, due to a mixture of reasons including the increase of the virus. Crypto markets have been very turbulent since the first few announcements of the new variant, so this is expected to be a very choppy time for most of the cryptocurrencies, especially Bitcoin.
Why Should You Buy Bitcoin Now?
While the short-term sentiment is bearish, many are still very confident in Bitcoin for the long run. Fairlead Strategies’ Katie Stockton also cautioned investors who are thinking of reducing their Bitcoin holdings. “It is rarely a good idea to sell into an emotionally-charged downdraft like this given the possibility of a shakeout”, she said. She even went on to say that if Bitcoin secures a position above $48K, it would be a positive based on the current range. Currently, Bitcoin is past this mark, so in the long-term, it could end up being a big positive for holders of the cryptocurrency.
El Salvador never manages to stay out of the Bitcoin debate, after becoming the first-ever country to accept Bitcoin as legal tender. President Nayib Bukele was quick to go on his Twitter and once again announce the country’s latest transaction.
President Bukele is notorious for buying the BTC dip, just like he has just done once again. Before the latest purchase, El Salvador had 1,220 coins, but now it has 1,370 in total. In the current market price, 1,370 Bitcoin’s are valued at over $66 million.
So, with all these actions that have led Bitcoin and the crypto markets to fall, do you think you will be buying the dip and holding more Bitcoin soon? Let us know your trade plans in the comments section below. But do remember, the markets are very volatile and nothing is predictable, so you should not put in more money than you can afford to lose.