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What caused the Bitcoin crash? Lessons to learn

2020 was a good start for bitcoin that went from $7200 to $10,300 in just 40 days.  Then it dropped with all other assets during the pandemic. It came crashing down on March 13th from $8000 to around $4200.  This raised the question on whether Bitcoin is truly a safe haven like gold or silver? Or does it just play along with the stock market, if so, why should anyone diversify into Bitcoin?

First of all, Bitcoin is more than a mere safe haven.  It is a piece of the technology and by that token piece of history.  When you buy bitcoin – you are buying into the ecosystem that is being built (and will be built in the future). 

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However, that argument will not satisfy those who are losing their life savings in bitcoin who hoped that Bitcoin would not react the same way the stock market does and provide hedge against traditional market.

Is this crash caused by the pandemic? 

The important question on everyone’s mind is: is this bitcoin crash caused by coronavirus pandemic? 

In our opinion, not entirely, though it was one of the reasons for the crash but not entirely. 

Reasons that ignited the crash:

1. Plus Token Scam

Plustoken scam, as pointed by Sue Zhu and ErgoBTC, that the team of plus token has moved a very large amount of bitcoin to their account and later diversified them into two accounts.

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Plustoken was a ponzi scheme spotted back in Nov’ 2019 when Ergo warned about what’s happening. 

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These scammers are dumping their loot into the market and they don’t care at what price they can sell.  This massive sale off was combined with the market crash due to the pandemic and we had a rather ugly drop in Bitcoin price.  As you will see that the bottom did not last long as Bitcoin quickly jumped back.

2. Stock Market Crash

The pandemic, lockdown, massive job losses and looming recession (or even fear of depression) all forced the market to sell off.  Bitcoin is a relatively new asset which has not seen a single recession in its lifetime, as such, people naturally want to liquidate bitcoin along with their stock holdings into fiat to stock up food and essentials.  This is understandable during times like these. With the markets tumbling down and the trading halted, the ripple effect impacted all asset classes including bitcoin.

3. Panic Selling

Mass hysteria is a real thing.  Market doesn’t run on fundamentals – it runs on sentiment. Right now market sentiment is probably at its worst. This fear sentiment created a massive sell off in everything. We heard crazy news about how people were fighting over toilet papers or paying ridiculous amounts of money for it. That’s what happens when fear grips the market – it loses its rational mind.  A rational mind would say ‘bitcoin is going to be the future of money’ but a fear gripped mind would say ‘I need fiat in hand to provide for my family’.  The danger is not baseless but the overblown fear is.  

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Lessons to learn

  • Do not panic (FUD) sell or FOMO buy

Never go with the market that is driven by fear or greed. However, those are the two primary emotions that drive the market – so it is easier said than done. Those who bought when the market hit low $4200 are now sitting on a 50% gain in a short time. And those who sold at those rates are now re-thinking their decision.  Never put an amount in bitcoin or cryptocurrency that you are not willing to lose. We personally own a fraction of bitcoin that we will never sell, at least, not anytime soon.

  • Markets are meant to fluctuate

Market volatility is the norm.  Extreme volatility is the norm in crypto space. Veteran crypto traders have endured market crashes that traditional investors would never dream of living through.  Crypto space is not for the faint of hearts. Decide before you enter.

  • Bitcoin is still hedge against fiat inflationary practices

The very fact that governments around the world can print as much money they want, whenever they want, is a strong case for Bitcoin.  The US and Europe with a combined GDP of $26 Trillion have a combined debt of estimated $51 Trillion, they are never going to pay this back – instead – they will eventually have to rely on alternatives (like bail-ins or demonetization or tapping into Citizen’s accounts).  We may not see a country leaning toward those options anytime soon but we might see it sooner than later in other countries. Gold and Bitcoin continue to be the safe havens against fiat inflation. Gold is not finite (at least at the moment) – bitcoin is definitely finite and makes it more dear of an asset to own and HODL.

Of course, no one knows how this pandemic will end and the consequences of it in the near and long-term future.  In our speculative opinion, we will see some solutions emerging before May and the economy will start, even if slowly at the beginning, in May 2020.  The stock market will rally back up sharply – however – the after effects of printing unlimited money will catch up in form of inflation and fiat will start losing its power.  How far will that loss go – we will have to wait and see.

Stay safe out there. 

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Thank you for reading and sharing this article. Keep safe and healthy!

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