BIC’s Video News Show: Crypto Crash Review

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In Brief
  • Crypto markets have been particularly volatile over the past month, due to a variety of factors.

  • China’s crackdown on miners is triggering an exodus, while El Salvador adopted Bitcoin as legal tender.

  • There have been a variety of stories coming out of the US, while Bitcoin’s Spent Output Profit Ratio falls below a critical threshold.

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In this episode of the BeInCrypto video news show, host Jessica Walker takes a closer look at the recent crypto crash. We’ll look at recent developments, including El Salvador, MicroStrategy, as well as Mark Cuban. We’ll also go over some ideas about trading Bitcoin, as well as some altcoins that have already been rebounding.

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Migration of China’s bitcoin miners

Recently, China has cracked down not only on cryptocurrency trading, but also mining as well. This started triggering a max exodus of China’s bitcoin miners. In fact, Texas is one of the places some of these miners are migrating to. One reason it is an ideal destination for miners is due to its deregulated power grid and pro-crypto political environment.

On Sunday, China extended its crackdown to the southwestern province of Sichuan, where many mines were reportedly shuttered. Overall, China’s actions seem to have led to a significant decline in bitcoin’s hash rate, or processing power.

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Digital assets working group

Additionally, the US House of Representatives Financial Services Committee held a hearing on central bank digital currencies (CBDCs). At the hearing, committee chairwoman Maxine Waters announced the creation of a “digital assets working group.”

Its focus will be on how digital assets, both centralized and decentralized, are entering people’s lives and what legislation can be created to reduce risks without stifling innovation. Members of the working group will also work on matters related to the possible creation of a CBDC in the US, Waters said.

El Salvador’s Bitcoin Law

At the beginning of the month, El Salvador passed legislation making Bitcoin legal tender. This came after President Nayib Bukele had vowed to do so during the Bitcoin conference in Miami.

However, the Central American country isn’t finding implementation of the law that simple. Additionally, the World Bank is refusing to assist El Salvador in this implementation. Some in the country also disagree with the Bitcoin law, and have filed a lawsuit against it.

MicroStrategy triples ($3 billion) down on Bitcoin

On Monday, MicroStrategy announced it now owns more than 100,000 bitcoins after completing another purchase round. The enterprise software company spent roughly $489 million on new Bitcoins.

This is an unprecedented concentration, but it does show a certain confidence in where Bitcoin is headed in the long run. The company now owns over $3 billion in Bitcoin.

Mark Cuban calls for regulation 

Meanwhile, erstwhile crypto supporter Mark Cuban has started calling for some regulation on cryptocurrencies. This comes after the collapse of a coin he had invested in on decentralized finance (DeFi) platform Iron Finance.

At first, some in the crypto world speculated that this was the result of a rug pull, which is a type of scam where developers abandon a project and leave investors’ funds. However, Iron Finance denies those claims, writing in a blog post that the crash was due to a “bank run,” and the token’s algorithmic code.

On-chain data

Last but not least on our radar was the Spent Output Profit Ratio, or SOPR. The SOPR is an indicator that measures the profit or loss of every single transaction that is made in the market. 

As you can see here on the chart from 2016, a consistent reading above 1, or the black line, suggests that Bitcoin is in a bull market. How so? In such times, participants rarely sell at a loss. This means that in the worst-case scenario, the SOPR bounces at the 1 line but does not drop below it. 

Basically, even long-term holders are getting impatient and are selling at low prices. Should the SOPR continue a decreasing trend, we might see even lower prices for Bitcoin in the coming weeks.

What’s next?

To determine what you should do next, first look at Bitcoin’s dominance. It has seen a dramatic drop both during the recent bull run and the crash.

Solana, the 14th-largest cryptocurrency by market capitalization, jumped by more than 55% after bottoming out at $20 on Tuesday.

So regardless of whether you believe the crash is over or not, it does seem likely that some altcoins will recover faster than others. Ethereum Dominance has been increasing, as well as the other altcoins’ proportions.

Is the crash over?

So is the crash over? The Bitcoin price of $30,000 is a critical level, and it seems the market reacted to the price going below it.  It’s more or less where Bitcoin started this year, and seeing it in the red might have prompted some to decide this is the bottom.

But bottom picking is not a game with many winners. Bears are talking about levels around $29,000 and $24,000, while bulls are hopeful for a quick recovery over $35,000 and $40,000. 

Even if the crash is over we are in for days and weeks with extreme volatility and sharp moves in both directions wherever the trend might turn and trading with smaller positions might be better from a risk management perspective. 

But if you are a believer in the bright future of Bitcoin and crypto, then something called “dollar cost averaging” might be a good investment strategy right now. It basically means buying regular small amounts of your investment of choice, regardless of what it’s doing in the last weeks or months.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.
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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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