Brace yourselves as more Bitcoin gleam crashes are coming in this new bull market, a crypto investor and entrepreneur warned. “Too much leverage” on crypto spin-off joined with low liquidity levels and “inexperienced traders” shattered the market this past Sunday.
“The Bitcoin price always comes back fairly quickly, so if you see it happen, it’s 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 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 began with one whale choosing to take profits as bitcoin hit USD 12,000.
According to the entrepreneur, many traders were now leveraged on the long side this weekend, as bitcoin had been highly bullish for several days. This also involved “speculators” on derivatives markets like BitMEX, which offers up to 100x in leverage on bitcoin, van der Chijs.
And when a “whale” determined to take profits by selling off coins as BTC achieved USD 12,000, the small price drop that resulted was enough for leveraged positions to get settled, 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 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.
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 stated.
As claimed by Koh, the bull market will possibly cause the most significant crypto assets to make up for their underperformance relative to smaller DeFi tokens year-to-date. ETH will lead this rally due to anticipation 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 would “run its course,” which 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.”
Despite that, a blowoff top doesn’t necessarily mean we have reached “the top,” Krüger remarked, 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 continued.
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 further went by almost 20% in a week.