Bitcoin Whales Knock Crypto Markets Back $20 Billion; Facebook Plans Cryptocurrency Debut
Was bitcoin’s parabolic surge between February and May the cause of an organic rally or driven primarily by crypto whales looking to capitalize on bearish sentiment?
That’s the question investors are left with following the punishing correction seen late Monday. In the span of a few hours, bitcoin and the wider cryptocurrency market shed $20 billion, eroding weeks of steady progress that had resulted in new yearly highs. While the pullback was widely anticipated following bitcoin’s 170% peak-to-trough surge since December, some analysts believe it could have been an elaborate short squeeze by hedge funds looking to bet against bearish positions.
The market bulls are not giving up that easy. By Friday, most of the top 20 coins were in the green, with bitcoin making a fast approach back to $8,000.
Epic Short Squeeze?
Bitcoin’s long-awaited pullback finally materialized this week, culminating in a 19% price drop over the span of nine days. The selloff intensified late Monday as bitcoin plunged more than $1,000 from its intraday peak.
The fire sale was initiated just days after bitcoin completed its fourth consecutive monthly gain, rounding out its longest stretch of continued growth in nearly two years.
According to cryptocurrency analyst Willy Woo, bitcoin’s recent run of accumulation wasn’t driven by an “organic bull market” but by hedge funds looking to short-squeeze the bears. Woo argues that hedge funds and other bitcoin whales recognized very early on that most traders were betting against the BTC price. In response, they purchased large quantities of bitcoin to force their competition to liquidate their positions. That appears to have taken place in the $8,000-$9,000 price range.
If you have sufficient capital. You can keep buying to liquidate the bears. It's extremely profitable.
You only stop when it’s no longer profitable.
At the $8k-9k mark the market switched from short to majority long. This put a cap on the profitability of short squeezing.
— Willy Woo (@woonomic) June 6, 2019
Read more here.
If Woo’s analysis is correct, investors can expect an even bigger correction in the bitcoin price. Only then will we see a true organic bull market.
Crypto Markets Stabilize
Despite their sharp correction at the start of the week, most major cryptocurrencies were trading mixed-to-higher by Friday’s session. Bitcoin reached a session high of $8,046.23 on Bitstamp and was last seen trading around $7,960. The leading digital currency continues to find strong support near the 30-day exponential moving average (EMA). As the following chart illustrates, the 30-day EMA has been a strong support level going all the way back to February.
The overall cryptocurrency market dumped $38 billion between Sunday and early Tuesday, reaching a low of around $241 billion. By the end of the week, crypto markets had stabilized at $255 billion.
In terms of percentage gains and losses, Bitcoin SV (BSV) and Tron (TRX) were the top-performing majors this week. EOS was the worst performer, falling 15.2%.
Read why manipulation may have been at the heart of the recent BSV price pump here.
Facebook Set to Launch New Cryptocurrency Whitepaper
After much speculation, Facebook will finally provide details about its highly anticipated cryptocurrency in a new whitepaper scheduled for release on June 18. Code-named Libra, the new cryptocurrency may offer a new digital payment system linking Facebook’s massive social media network.
As TechCrunch reports, a Facebook executive has not only confirmed the release date but has stated that the new cryptocurrency would be pegged to a basket of currencies. By pegging Libra to a basket of currencies rather than a single one, the new coin would help mitigate extreme price fluctuations. These and additional details will be spelled out in the whitepaper.
Last month, BBC reported that testing of Libra would begin later this year, with an initial roll out in a dozen countries expected for the first quarter of 2020. The social media network has reportedly reached out to credit card companies Visa and MasterCard to invest in the new venture. It has also sought out the advice of leading digital exchanges Coinbase and Gemini to gather intelligence on custody solutions and cryptocurrency conversion options. Read more: Facebook Taps Winklevoss Twins, Coinbase to Help Build Massive Cryptocurrency Project.
The Week Ahead and Things to Consider
Bitcoin’s punishing reversal suggests that the dominant uptrend that began in February may have finally peaked. The pullback was widely anticipated and is not uncommon when analyzing bitcoin’s previous cycles. Declines of 30% or more are to be expected anytime bitcoin and the broader market more than double in value in a very short period.
That being said, the nature of the rally – whether it was organic or driven primarily by bitcoin whales – could dictate how the market behaves over the next several months. For long-term holders, the picture doesn’t change very much. Bitcoin is in month six of a new four-year cycle – one that is expected to peak about a year after the 2020 halving event.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Charts via TradingView and CoinMarketCap.