In this article we review the whipsaw price action that occurred over the last 5 days, from dramatic declines to stupefying ascents, attempting to provide some insight into why the markets did what they did. All in all, it was a great week for crypto, with BTC ending the week up over 13% and the entire market cap adding $25 billion.

Last week’s price chart for BTC was particularly odd to visualize. Source: coinmarketcap.com

 

After Bearish Fake-Out, Bitcoin Continues Bullish Momentum

 

The first three weeks of October were relatively boring for Bitcoin as prices seemed to be stuck in a range between $7900 and $8600, but then all that changed just five days ago. Late in the day on October 23rd, the price of BTC suddenly plunged beneath its long-tested support of $7700, sinking below $7400 for the first time since mid May. It was a disheartening move. By all indications, the price was expected to resume the upward journey it had embarked upon since late December of last year, and a sudden, seemingly unprovoked downward move of $500 has a jarring psychological effect on many traders. ­

The major theories behind the sudden drop were varied and possibly working in tandem. First off, the timing of the sell-off coordinated with testimony being given by Mark Zuckerberg in congress regarding plans for Facebook’s highly contentious stablecoin, Libra. At the hearing, Zuckerberg was grilled for six hours by members of the U.S. House of Representatives who threw all kinds of questions at him — everything from the specifics of what was going to back Libra’s value to the number of minorities working on the project. The entire affair was disheartening to all involved, and at the end of it, one House member was exasperated enough to mutter, “I’m not sure we learned anything at all.”

It became apparent that those asking the questions to Facebook’s founder had already made up their mind before the questioning began, and that congress had no desire to entertain the idea that perhaps a social media corporation should be allowed to create their own currency that would run in tandem (and competition) with the U.S. dollar. This attitude, of course, has a dampening effect on Bitcoin’s prospects of eventually gaining the sort of legitimacy and approval that Libra was hoping to obtain from the U.S. government. Not even Zuckerberg’s willingness to attempt to appeal to all sides of the equation seemed to help his case.

Another theory behind last Wednesday’s sudden drop has to do with it aligning with the Bitcoin Futures contract expiry date for the month of October. Thanks to Bitcoin Futures products developed first by the Chicago Mercantile Exchange (CME) and now Bakkt, Wall Street has a means through which they can bet on the price of BTC. On the last Friday of each month, outstanding CME futures contracts settle, and it becomes time for institutions to buy or sell BTC based on the type of futures being held.

Cryptocurrency website Trustnodes has put forth a theory (beginning back in May) that there is probably some manipulation going on by Wall Street in at least one of the four major exchanges used to calculate spot prices. This causes BTC to suffer a mini- to decent-sized crash at some point during the last week of each month, during which Wall Street can profit from their futures positions while everybody else takes a loss.

Regardless of the reason – or combination of reasons – behind the drop, HODLERs didn’t have enough time to let depression set in before things began to reverse course. Exactly 48 hours after the fall, the price of BTC was well on its way back to the long-held $8k mark. 10 hours later it had breached $10k. All-in-all, Bitcoin had made a 30%+ move in less than 24 hours, making it the biggest, fastest gain seen all year. Traders didn’t have much to which they could compare the explosive move, as even during 2017’s massive bull run, there was a general feeling that new all-time highs could be made in the near future. It was the 3rd biggest rise in Bitcoin’s history, so indeed there wasn’t much available to compare it to in Bitcoin’s 10 year history.

This time around, the upward momentum caught many investors off-guard, but for most, it was welcoming news. For others (mainly leveraged short traders), it was a disaster. BitMEX, and exchange made famous for giving traders up to 100x leverage on a long or short position, saw record numbers of short positions liquidated, resulting in hundreds of millions worth of BTC trades being closed in a matter of minutes. A Twitter bot named BXRekt which posts a tweet every time a short position on BitMEX gets liquidated actually reached its maximum number of tweets allowed per day due to the incessant flood of short position margin calls.

The forced liquidation of these trades helped propel Bitcoin even higher, and at one point in Saturday’s climb, it reached $10,400, before settling down in the $9-$10k zone, where it currently resides. So, what news item was responsible for the giant “melt-up” that occurred on Friday / Saturday that could be powerful enough to cause such a degree of turbulence? On Friday evening, the president of China, Xi Jinping, made his first comments ever on blockchain technology, and they were largely regarded as positive. It was also the first time any Chinese official had addressed the issue since the Bank of China announced their decision to outlaw cryptocurrency altogether in 2017.

Although no announcement of a reversal of the ban was made, Xi said it would be “necessary to implement the rule of law network” into existing blockchain system, thus suggesting that regulations were on their way to be formulated in order to allow for the eventual legality of cryptocurrency in China. The nation of 1.6 billion is also the world’s largest miner of bitcoin, which poses something of a problem for the Chinese government if they continue to leave this at times conflicting issue unaddressed.

The general vibe registered by those trading BTC on the news was that China was finally opening the doors to eventual cryptocurrency legalization, even if not in as many words, and that it may still be years away. With such a huge population – hundreds of millions of which are tech-savvy and internet-connected – China could provide a massive influx of new crypto users after legalization has finally been passed into law.

Bitcoin wasn’t the only crypto to come out ahead over the downs and ups of the last week. Several altcoins managed to perform even better. Here are some of the biggest gainers in the top 20 coins by market cap over the last 7 days:

  • Bitcoin (BTC): 13.64%
  • Bitcoin Cash (BCH): 14.88%
  • EOS (EOS): 14.50%
  • Bitcoin SV (BSV): 30.83%
  • TRON (TRX): 27.59%
  • NEO (NEO): 45.03%