Just when BTC seemed ready to explode and reach new highs, the price started tanking, and consequently, it dropped. Trading at $50,000 as of December 6th, the price has recovered substantially after a flash crash to $40,000 in many exchanges, especially derivatives platforms such as Binance Futures, KuCoin Futures, Bitlevex, FTX, amongst others.
However, the question remains: what elements caused BTC to drop so hard? Is this incident going to affect the so-called “Super Cycle” of BTC and the crypto market? Is it a good time to buy? We will answer all of these questions in the following sections.
What elements caused the drop of BTC and the crypto market?
The crypto market was attacked by several factors from COVID-19 to Elon Musk. The damage has been substantial, and according to stats, the crypto market saw over $1B worth of liquidations just on December 4th. Undoubtedly, this flash crash has been devastating for thousands of traders, especially those who were over-leveraged.
Now, let’s talk more about each one of the factors that contributed to this crash.
The New Omicron Variant
According to reports, there’s a new COVID-19 variant, called the Omicron. Rapidly, the fear of lockdowns, strict sanitary protocols, and more damage to a still-recovering economy was reflected on S&P, legacy markets, and crypto markets. In fact, all the markets around the world felt the Omicron effect.
As new cases of the Omicron variant were detected not only in Africa but also in the USA, the fear grew stronger and so did its effect on the markets. Furthermore, since many cryptocurrencies, including BTC, were already on the over-bought scale, such a reaction was to be expected.
China Is Cracking Down on Crypto Services (Again)
China is back at it again. This time they are not saying they will ban BTC (once again), but they’re actually cracking down on crypto services, fueling the sell-off since the uncertainty and fear in the market are still strong. This, along with the Omicron issue, has conspired together to make the BTC price drop.
The Evergrande Issue
Did you know that Evergrande will have to come up with over $80 million by Monday to pay their creditors? As it’s not likely to happen, rumors already say that China will let the company fail along with other troubled companies in the real estate industry such as Kaisa, which also has accumulated mountains of debt. The panorama isn’t beautiful, and if it’s true that China will let Evergrande, Kaisa, and other companies fail, the impact on the economy will be hard, and that includes the crypto markets.
Crypto markets have already fueled the fear out of this news and rumors, and along with the Omicron variant and China’s crackdown on crypto services, they all have contributed to BTC’s flash crash. If these companies fail to pay, we will see the real effect on crypto.
The Perfect Storm
Crypto markets can be quite sensitive to news, especially when they’re as powerful as the COVID-19 narrative and the crash of key industries in leading countries such as China. Therefore, this result was to be expected. For the first time since the COVID-19 dump in 2020, we’ve had 3 monthly closes in red – will the bleeding continue? That’s something we have yet to see.
Is this incident hurting the possibility of a Super Cycle?
We still don’t know if we will have a Super Cycle – it might never happen! We are just counting on possibilities, but contrary to what most people think, this incident might contribute to fueling a possible Super Cycle.
By letting the markets take a rest, flushing off desperate and impatient traders/holders, and allowing new investors and institutions to buy cryptocurrencies at lower prices, we are entering into a prime phase for the new leg up.
As we mentioned, this is the first time we’ve had 3 monthly closes in red, and if the FUD starts to fade away, we might be ready to have a pretty good close of the year and a new rally in the first quarter of 2022.
Should you be buying BTC and cryptocurrencies right now?
If you have funds available, you should be definitively adding more coins to your positions. We won’t talk about what cryptocurrencies you should be buying, but considering that you’ve chosen good projects that haven’t rallied that much, now you have the possibility to lower your entry point, and hence, boost your potential profits.
Now that you know the factors that caused the BTC price to drop, let us know what you think will happen in December and the beginning of 2022. We are living in turbulent times, but as the old saying says, you should be selling when there’s greed and you should be buying when there’s fear.