Why is bitcoin in the bear market?
Many people wonder what happened to Bitcoin after the spike during late last year. How did it go from the highs of up to $20,000 to now where the price is hovering around $6000 to $7000 levels? What affected it? Many tried to explain why this happened. Neither the rise or the fall of Bitcoin (and the whole cryptocurrency world for that matter) was purely organic. Many things influenced the markets, both upwards and downwards. However, one factor that people mostly forget is in play here.
What actually happened to Bitcoin?
Bitcoin has been in a bear market ever since the start of 2018. People usually blame only one thing for the rise or the fall of the Crypto markets, but that’s simply not true. That is systemically incorrect because there were many factors contributing to bringing Bitcoin to the current situation.
The Rise of Bitcoin
Cryptos are a fast moving asset. However, the parabolic rise Bitcoin (and the whole crypto market for that matter) had was more speculation than real adoption. So what could possibly be the reason for this?
Besides the organic bubble creation cycle which happens when people ignore the true value of the asset and invest simply because of the potential to earn money, there is one far more serious reason.That would be printing of the USDT (Tether).
Tether is a cryptocurrency pegged to the US dollar value. It’s claimed that for every Tether created, there is one US dollar “sitting” in the bank in order to make tether truly stable. But the recent news and happenings are telling us a different story. It was clear that something was wrong after Tether (which is connected to Bitfinex exchange) called off the auditors. People started to be distrustful, and many started to avoid using Tether cryptocurrency.
The timing of printing tens (even hundreds) of millions of Tether match the times of Bitcoin spikes in volume and price. This amount could clearly manipulate the market and change the minds of investors. The new “gold fever” started as the spikes in price piled up, and the bubble was created, completely inorganically and without a need or a purpose.
The Fall of Bitcoin
Many factors affected Bitcoins’ moves in the past couple of months, and they include Bitcoin Futures (both CBOE and CME), Mt.Gox trustee selling Bitcoins in a price-changing fashion, price spoofing… Here are the possible reasons of why the price went down:
Bitcoin Futures Market
After CME and CBOE started offering Bitcoin futures, some clear patterns were appearing on the charts right near the end of each contract. The price moved down quite a bit almost every single time. On top of that, people reacted to the creation of a Bitcoin futures index, as it meant that CFTC (US commodity futures trading commission) had its hands in Bitcoin and is trying to centralise it.
After the first contract came due, market sentiment started to become somewhat rationalised. January was the time that CME requested trading data from four cryptocurrency exchanges, but they did not want to provide such data, with the explanation that the request was too intrusive. Ultimately, the exchanges did handle the data, but only after CME agreed to shorten the time request for the data from one day to a few hours. Surprisingly, before CME requested the data the regular way, they tried to do it by using a third-party company, which ran its own trading platform. The exchanges said no.
Mt. Gox trustee
Another possible reason and something that surely affected Bitcoin on its way down was Mt. Gox trustee selling big amounts of Bitcoins on exchanges without much care (or with intention of manipulating the price) instead of using OTC trading with individuals, because that would not affect the price.
Mt. Gox is the largest crypto exchange, which was based in Tokyo, Japan. It was created in July 2010, and by 2014 it was handling over 70% of all Bitcoin transactions worldwide. In February of 2014, Mt. Gox filed for bankruptcy and shut down the business. The hackers that caused them to file for bankruptcy stole 850,000 Bitcoins. Over the years, 200,000 Bitcoin were found and restored, and are now handled by the Mt. Gox trustee. His job is to sell the remaining Bitcoin in order to settle the claims of creditors.
Another way of tipping the price up or down is by controlling the sentiment of the market. Influential traders (ones with a lot of capital) can do this by placing large buy or sell orders just above or below the selling price. That way, the market sentiment changes to another direction once they see a “wave of orders”. But, has it contributed to Bitcoin going up and down?
The story can be told both ways. Yes, spoofing has happened, and it will happen in the future. However, it has not been done to that extent that it changes the whole trend of the market, and for such a long time. That would be nearly impossible.
Bitmex and Binance exchanges
Bitmex is the biggest trading “exchange” of cryptocurrencies and its derivates. Traders can long or short Bitcoin or its derivates, with up to 100x leverage. Binance, on the other hand, is the biggest cryptocurrency exchange (in the purest form) by volume even though Bitmex technically has higher volume. It would all be fine and dandy with these two until we heard of a serious problem that might affect the market. They both claimed that they trade AGAINST THEIR USERS!
Both Bitmex and Binance have trading desks which consist of traders that constantly try to make money in various ways.
Bitmex users are allowed using margin (leverage) trading, which means that people’s capital is more exposed and that people can lose their capital faster. They ordered their trading desks to place buy and sell orders in order to move the price in both directions for just a fraction, in order to trigger stop losses. Binance traders also have their way of making additional money for themselves.
Even though both Bitmex and Binance are trading against their users, it did not and it can not affect the price in such a way that it changes the direction of the trend for such a long time.
Adoption versus speculation, expectations versus reality
Market sentiment is exactly how it is because of the adoption rates and the speculative positions. Investors bought Bitcoin and altcoins not because of their value and their ability to change the world, but rather because of how much money they can make in a day, month, year. This kind of action has created a “cult” of crypto-lovers that did not agree with any valid point against crypto at this moment in time.
Truth being told, cryptocurrencies are not ready for the world yet (and the world is not ready for cryptos to some extent)… They have to undergo many changes, fixes and optimisations in order to actually contribute to how the world works. As far as use case goes, not many cryptocurrencies have it, except for being a beacon of hope for people who value decentralisation. After the crypto-market crashed, people who were speculators ran away from cryptos, while other got their eyes opened in a very painful way. The price of Bitcoin will stop falling when the expectations level with reality.
Market manipulation has happened in every single tradable asset market in the world, cryptocurrencies included. The cryptocurrency market is so young that market manipulations are a bit more prominent, and the average investor is much younger and has less knowledge, and that’s why the market moves faster and sharper. If we take into consideration the invested money versus current valuation of the field (real invested money versus current market cap) we can argue that cryptocurrencies are a very fragile market and one susceptible to manipulation. Also, we are safe to say that USDT was responsible for close to half of the Bitcoins upwards moves in the past year.
People are often asking when the market will get to its previous highs. My question for the curious is: How and when can/will the crypto market reach new highs if the previous highs were created artificially? We are awaiting for a sign of trend reversal out of Bitcoin bear market.
All being said and done, I certainly believe cryptocurrencies are the biggest invention of our lives and I’m extremely bullish in the long term. But, the world might not be ready for the true form of cryptocurrencies yet. Only time will tell in what form and how cryptocurrencies will survive.