- Despite the storm in traditional financial markets, Bitcoin’s Troubled Weekend is one of the few times in history that a storm in cryptocurrencies has ignited unrest, highlighting the growing role of large investors in a fledgling market.
- In total, $2.5 billion was liquidated – the largest value since September.
- In Joshua Lim’s view, professional investors have pressured cryptocurrency platforms such as Binance to close positions.
Bitcoin’s Troubled Weekend is one of the rare occasions that a storm in traditional financial markets has sparked unrest in cryptocurrencies, highlighting the growing role of large investors in a fledgling market.
On Saturday, December 4, Bitcoin fell by 20% in a matter of hours. The cryptocurrency began to fall within hours of the close of a volatile week on Wall Street, as stocks and bonds rallied sharply in response to potential changes in monetary policy and the threat of the spread of a new strain of coronavirus.
“First, liquidations began on risky assets in traditional markets, and then the wave hit cryptocurrencies,” said David Fauchier, portfolio manager at Nickel Digital, which specializes in digital assets
He added that investors, who were selling shares, and also rushed to get rid of Bitcoin, which, unlike other assets, is traded on weekends. In total, $2.5 billion was liquidated – the largest value since September. According to Joshua Lim, head of derivatives trading at Genesis Trading, pressure from professional investors has led to the closure of positions on cryptocurrency platforms such as Binance.
At the same time, Lim notes that in the traditional futures markets, the volume of liquidations exceeded $ 5 billion.
Over the past two years, Bitcoin has risen in price by more than 500%. Retail investors and some of the big players loved the theory that it was not correlated with other assets. However, the more hedge funds and other professional investors come to the market, the stronger the ties.
According to Jan Stromme, founder of crypto trading company Alphaplate, many large investors were also keen to turn paper profits into real ones by the end of this year, which contributed to the sell-off.
“I think the correlation between risk sentiment in traditional and digital markets will intensify,” Fauchier added.
Several factors prompted investors to rethink their positions and abandon assets that thrive on strong global growth: a new strain of coronavirus, lack of sufficient data on jobs, as well as comments from Federal Reserve Chairman Jay Powell, who hinted at an imminent rate hike.
“[The bitcoin sell-off gains momentum] amid growing general market turmoil,” said Lim.
Professional investors diving into crypto tend to lack an almost religious belief in digital assets. They should follow the example of hardcore fans who insist that you need to hold onto digital coins no matter what happens.
“We have to think like this: it’s just another risky asset that will grow when the world is stable and sell when it’s not,” said Beat Nussbaumer, a Swiss currency trader and portfolio manager. Early buyers rejoiced when institutionalists entered the market, hoping that an influx of institutional money would send bitcoin to the moon. However, along with the money, I sewed on new vulnerabilities.