Coinbase, one of the leading cryptocurrency exchanges based in the United States has in a blog post analyzed the cause of Bitcoin (BTC) devastating price crash, which also affected all cryptocurrencies in the market in early March 2020.
It was a huge price plummet for BTC and other cryptocurrency assets on 12th March 2020. The over 50% price drop marked the single largest 1-day drop for Bitcoin since 2013.
The Bitcoin price drop also correlated with the price disruption in the conventional markets, which has so far been attributed to the impact of coronavirus pandemic.
The huge impact of the pandemic resulted in the drop of S&P 500 and DOW Jones by almost 10%, the biggest 1-day decline since 1987.
Prior to this huge price drop, it’s generally believed that BTC came to existence to serve as safe-haven in a time of financial crisis such as this present economic situation.
This scenario and the inability for Bitcoin to prove itself as an uncorrelated asset left the cryptocurrency investors and traders with confusion. Many questioned the cause of the notable price crash, asking why BTC could not sustain its stability at $9,000 price level it maintained before significant crash.
Coinbase Shares Its Opinion Regarding Bitcoin (BTC) Price Crash
This unexpected price loss experienced by Bitcoin has been analyzed by Coinbase in a blog post published on 30th March 2020.
In the blog post, Coinbase stressed that the reason behind the crash in Bitcoin price and stock market was similar, but it seemed huge for BTC due to the size and scope of leverage in the Bitcoin industry.
The reasons behind the Bitcoin crash were similar. Some short term speculators sold, some institutions required cash for margin calls elsewhere, and some leveraged positions were forced to close. But it dropped harder and faster for Bitcoin than traditional markets for one central reason: the size and scope of leverage in the Bitcoin industry.
Coinbase further explained that the aggregate size of all leveraged contracts on exchange-based products was around $4 billion before the price crash.
Prior to the crash, the aggregate size of all leveraged contracts on exchange-based products hovered around $4B. Significant enough that any appreciable drop could induce additional shocks to the price.
Normally these drops coincide with willing buyers, but the March 12th panic flipped buyers into sellers. As prices drove lower, more leveraged positions were forced to close. Each new sell was met with tepid buying, dragging the price again lower, resulting in more liquidations. A cascading effect.
Coinbase also underlined the BitMex effect due to the DDoS attack cited:
“Amidst the selloff, a Bitcoin on BitMEX was trading well below that of other exchanges. It wasn’t until BitMEX went down for maintenance at peak volatility (citing a DDoS attack) that the cascading liquidations were paused, and the price promptly rebounded.”
How Coinbase Users Reacted to the Price Drop
Coinbase says that in “the 48 hours during and immediately following the drop”, it saw “record-breaking numbers” compared to its last 12-month averages:
- “5x increase in cash and crypto deposits, totalling $1.3B”
- “2x increase in new-user signups”
- “3x increase in trading users”
- “6x increase in total traded volume”
Coinbase Remains Confidence in Bitcoin Despite the Price Loss
The cryptocurrency exchange wrote, “Bitcoin was created for a moment like this…
“And as the US government turns to slashing interest rates, passing large stimulus packages, and infinite quantitative easing, Bitcoin will soon do the opposite in the next Bitcoin halving…
“Ultimately, Bitcoin’s value prop should not be defined by extraneous market dynamics, but rather by its unique properties that make it a potentially attractive store of value.”
Conclusively, Bitcoin (BTC) has been changing hands above $6,000 support level since it experienced a slight price uptrend after the notable crash.
At the time of writing, BTC is trading at $6,270.69, with a 3.13% price plummet in the last 24 hours.