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Last Week’s Crypto-Carnage and the Smart Gold/Bitcoin Trade

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At the time of this writing, Bitcoin had just collapsed by a third of its value in 24 hours!

As recent as last Sunday, the price of one Bitcoin approached $20,000. Earlier today, it sunk below $11,000 before stabilizing at the $13,000 level.

Coinbase, a prominent crypto-exchange, was forced to halt trading for a approximately two hours.

Crypto-bull Mike Novogratz suspended his plans to launch his crypto hedge fund, stating "We didn’t like market conditions and we wanted to re-evaluate what we’re doing...I look pretty smart pressing the pause button right now."

In addition to speculator-driven profit-taking, Bitcoin, both a nascent currency and technology, has been experiencing some bad news recently:

  • Last week, Bitcoin Cash--another Bitcoin currency resulting from a “fork”--was suspended from various exchanges due to suspicion of insider trading.
  • The SEC suspended trading of The Crypto-Company (CRCW), a Bitcoin-related stock.
  • South Korean exchange, Youbit, was forced to go out of business after falling victim to two cyberattacks, allegedly originating from North Korea.

Meanwhile, in the equities and futures markets, the arbitrage spread between Bitcoin Investment Trust (GBTC) and Bitcoin Futures moved toward convergent levels:

This drop--nearly $9,000 from its most recent highs--is the most volatile and aggressive drop it has had in almost three years!

And in just bounced back up, by $2,000.

Followed by a cascade of selling every time it bounced up.

As severe as it may seem, from a large picture perspective--one that takes into account Bitcoin’s price movements since 2010--last week’s plunge was rather small:

In fact, Bitcoin has crashed over 30% nearly every quarter since 2013.

Perhaps a crash of this magnitude and regularity is to be expected. After all, everyone knew that Bitcoin was a highly volatile asset--not a bad one, just a volatile one.

So where do we go from here? Let’s put things into perspective.

Speculators who are jumping into Bitcoin because it is a fashionable “red-hot” investment, who seek a “quick buck,” and who have no clue of what Bitcoin is about (and therefore NO RESPECT for the cryptomarkets or crypto-movements), well...they get what they deserve.

As FX broker Oanda’s Stephen Innes said, “Most of it is unsophisticated retail traders getting burned badly.”

Smart investors who understand and respect the cryptomarkets know that it ain’t over yet, and that cryptocurrencies, blockchain technology, and other technological innovations that these technologies will engender--these technologies will change the entire technological and monetary landscape.

Mike Novogratz who, as we reported above, suspended his plans to launch his crypto hedge fund, is simply waiting for a better price to jump in.  Novogratz believes that Bitcoin may drop to as low as $8,000, nearly 60% from its most recent highs! He sees the bull trend continuing.

Meanwhile, we see the spread between Bitcoin and gold converging:

Fortunate is the investor who was wise enough to own gold and patient enough to wait for Bitcoin to enter more favorable levels.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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