At the very end of an extremely bullish day for bitcoin, there was a flash crash that took nearly 7% off the price of the cryptocurrency. However, experts are still optimistic about its overall rally.
The price of bitcoin BTCUSD +1.48% started going down after reaching a high of $103,853 on Thursday. It quickly fell all the way to $92,251. Bitcoin was worth $97,859 on Friday, 1.2% less than it was the day before.
Bitcoin broke through the $100,000 mark for the first time on Wednesday, after President-elect Donald Trump said he would name Paul Atkins, who is thought to be friendly to cryptocurrencies, to lead the U.S. Securities and Exchange Commission. People also felt good about what Fed Chairman Jerome Powell said when he compared bitcoin’s role to gold.
A “flash crash” is a sudden, dramatic drop in the value of an asset or market that quickly goes back up. Cryptocurrencies are some of the most risky assets out there.
Sean Farrell, head of digital asset strategy at Fundstrat Global Advisors, told clients that $400 million was sold in the perpetual futures market for bitcoin right after the U.S. market closed on Thursday. Perpetual futures are derivative contracts that don’t have an end date. He thought that the sharp drop was “just a function of having a lot of speculation in the market” because of how much debt the market had been carrying.
Farrell said, “This is not unusual for bull markets.” He also said that a similar move happened in March, along with a lot of liquidations, but “not quite. to this level.”
He thinks these kinds of steps back are good. “It’s always good to get rid of some bad debt, especially before an important economic report,” he said, referring to Friday’s nonfarm payrolls numbers.
“If the data comes in strong, I think most of the selling that would have happened on a stronger print happened today,” So, Farrell said, “I think this could be a case of sell the rumor, buy the news.” They are also “buyers of this dip.”
Some economists are worried that a report that is too positive could kill dreams for a Federal Reserve interest rate cut this month. They think that a net of 214,000 jobs were created in November.
Yuya Hasegawa, a crypto market analyst at the Japanese exchange Bitbank, said that investors may have gone short on bitcoin because of the “weak U.S. equity market and short-term overheating,” which caused $67 million worth of long positions to close in just a few hours.
“Breaking the $100,000 psychological barrier and spike in volatility might seem like a major ceiling for some investors,” Hasegawa wrote in a note that MarketWatch saw. “But it is too early to say that bitcoin’s long-term trend has changed.”
He points out that it has only been 230 days since bitcoin was “halved” in April. This event cuts in half the rewards for people who mine bitcoin, which helps control supply. Between 371 and 546 days have passed since the last halving, he said, for bitcoin to reach a big record high or top.
Hasegawa said that based on past halvings, bitcoin may be about halfway through the big top of the cycle. “It may also look like the bitcoin market is overbought right now, but if you look at it against previous bull runs, the current price performance is the worst. So, the drop on Thursday could very well be a normal adjustment for bitcoin.
He showed this chart to show where bitcoin prices have reached their highest points after halving:
Dan Coatsworth, investment analyst at AJ Bell, countered that what investors saw late Thursday on bitcoin wasn’t really a crash, as he estimates a peak-to-trough movement of about 6.6%.
“That would be dramatic for the equity market but not for cryptocurrencies. There are plenty of examples of much larger moves such as bitcoin falling by 83% on 10 April 2013 and seven years later it lost half its value over two days during the global market crash spurred on by the COVID pandemic,” he said in a note. “Bitcoin has earned a reputation for being a volatile asset and this week’s price action is tame relative to history.”
