My phone woke me up unexpectedly Sunday morning. It was buzzing with the news that bitcoin had suffered a flash crash — dropping as much as 14% to $51,141. I saw the alerts, checked my Twitter timeline and then rolled over and went back to sleep.
And I slept soundly. Because — in my mind — there’s nothing to worry about. Indeed, by the time I was midway through episode three of Bridgerton last night, bitcoin was trading at $56,998. In fact, bitcoin has been trading anywhere from $56K to $59K for more than half of April. It’s only spent one week trading above $60K.
Plus, this is what bitcoin does. It’s still a young, volatile asset. And considering it was trading for below $20K back in December, bitcoin needed a breather from its meteoric rise.
Sunday’s sell-off can be attributed to a variety of factors. Mining bitcoin requires a significant amount of energy. And a region in China that mines a large amount of bitcoin (in theory) is now facing blackouts. That has the potential to increase both transaction time and the cost to use the system.
There were also rumors of the U.S. government cracking down on money laundering (but there’s always talk about that). And talk of the market having hit its top.
But I’m not buying that this correction was in reaction to any single event. It’s much more likely the result of a chain reaction. Bitcoin analyst Willy Woo — who does a terrific job of tracking on-chain behavior for bitcoin — had what I believe is the best explanation for Sunday’s sell-off.
Summary:
– Initial sell-off due to anticipation of miners going offline in China.
– Sell pressure was sufficient to trigger liquidation of short term speculator positions, forcing price violently down.
– Longer term fundamentals are very strong.
The good news is most of the institutional investors that have bought into bitcoin are in for the long-haul. And retail investors are just joining the fray. With more people than ever buying bitcoin, this bull market likely has much more room to run.
So don’t worry about Sunday’s sell-off. We’ll probably see a few more of those this year — along with bitcoin rising to record-high prices.
After all, that’s just what bitcoin does.