Crypto Market Crashes Amid Frenzied Trading and China Warning. Is it Time To Buy the Dip?

Cryptocurrencies may have come into 2021 on a high note but recent activities in the crypto market have seen investors begin to recall the 2018 market turbulence.

In a week that has seen the price of large-cap crypto assets like Bitcoin and Ethereum stutter, the broader crypto market has lost over $750 billion worth of value, with the bears seizing the market.

Bitcoin saw a massive sell-off after its price slid from the previous all-time high of $65,000 in mid-April to lows of $36,941.

Nothing new here

This is not the first time Bitcoin has undergone a major correction. Following a bullish run in 2017, Bitcoin, which still represented a little-known industry, saw heavy negative price action in 2018. 

The total market cap of the crypto market slumped from $372 billion to $309 billion in 24hrs with BTC losing $60 billion in the sell-offs.

This saw Bitcoin trading as low as $6,200, down from its previous high of $19,783.06 in mid-December 2017.

What caused the last crash?

Several incidents compounded to lead to the 2018 price action.

The first was Google’s announcement that it would no longer allow crypto ads on its Google Ads platform. The policy, which became effective in June 2018, caused Bitcoin prices to nosedive and captured ICOs, trading advice, and crypto-wallets. The impact of this change was in fact far lesser than some predicted as advertisers simply moved to other platforms.

Mt. Gox’s 2014 collapse also played a role in the 2018 crypto crash. Nobuaki Kobayashi, who served as the trustee of the bankrupt crypto exchange, reportedly sold off an undisclosed amount of Bitcoin and Bitcoin Cash, further crashing the price to below $6,000. 

Although he did it to pay off customers who lost their funds in the Mt. Gox hack of 2014, market sentiment went into oversold but those who saw beyond the short-term price action profited greatly after the price recovered.

Could 2021 be another healthy correction?

Most people will point to Tesla’s CEO Elon Musk and his company’s decision to halt Bitcoin payments for its electric vehicles. Here at Xcoins we have been closely following Elon Musk’s statements on crypto and their tendency to move the market. But, it appears comments from the People’s Bank of China (PBoC) have further pushed the crypto market to enter the red zone.

On Wednesday, the Chinese authorities stated that banks and payment firms were not allowed to offer clients any services involving cryptocurrencies. The regulators also warned of the risks linked to trading crypto assets. 

Following the news, Bitcoin fell below $34,000 for the first time in three months before regaining some strength, powering back to $40,000. It is certainly worth noting that the statement from the PBoC doesn’t appear to introduce any new regulatory steps, according to Yu Lingqu, a vice director at the China Development Institute think-tank in Shenzhen. The announcement was released by the central bank but delivered by industry associations rather than government officials, making it less powerful, according to Liu Yang, a lawyer at Beijing-based law firm DeHeng Law Offices.

This is certainly not the first time that Chinese government regulations have moved the markets. China once served as the epicenter of BTC trading. But in 2017, aggressive government regulation saw most Bitcoin trades and crypto exchanges leaving for less hostile countries. But still, the Asian nation plays a critical role in the continued production of BTC as it mines about 50% of the global BTC in circulation.

Regulatory concerns and Government crackdown have always been factors that can trigger the market and push some investors to sell off. It’s nothing new. Bitcoin always bounces back – or at least it has done every time so far, but we should of course take this moment to give you your statutory reminder that past performance is no indication of future gains.

In the US, new Securities and Exchange Commission (SEC) Chair Gary Gensler also spooked the market when he spoke on Bitcoin recently. Gensler had noted on a CNBC interview that the crypto market needed more regulation to protect investors. 

Institutions Are Buying the Dip

But despite what many may call a repeat of a vicious Bitcoin crash cycle, institutional investors are ‘buying the dip’ in massive volumes indicating that deep-pocketed investors remain bullish on Bitcoin.

In a report by Bloomberg, a Bank of America fund manager survey showed that “Long Bitcoin” had overtaken “Long Tech” as the most crowded trade in the world. According to the report, over 194 fund managers with $592 billion assets under management (AUM) are betting on cryptocurrencies ahead of the STEM industry. 

Long Bitcoin was also the most crowded trade in Bank of America Merrill Lynch’s global survey in 2017. At the time, Bitcoin was trading at $4,000 before it broke through the $20,000 mark for the first time.

As prices fall, will you buy the dip? That’s something that only you can answer, but we know we certainly are.