The Austrian avant-garde artist Hermann Nitsch couldn’t have imagined a better scene in his Orgien Mysterien Theater, than the one we are currently witnessing: The streets are full of blood and the ultra rich are literally wallowing in it, rejoicing that they are able to buy Bitcoin sub $40k again.
The big crypto crash on May 19th was one of the biggest daily percentage moves in over a year, with mostly newbie investors rushing to exit trades that until recently were outperforming any other asset class. Chris Weston, head of research at brokerage Pepperstone in Melbourne, pointed out that more than $9 billion of crypto positions had been liquidated over a period of 24 hours, with the transaction volume spiking to $532 billion across all major exchanges.
Many people are now looking for explanations to what has caused this carnage and most of them are pointing towards Elon Musk’s Twitter battle with the Crypto Twitter community. His Twitter statement that Tesla had suspended vehicle purchases using Bitcoin due to climate change concerns had caused an outcry by the wider crypto community. As a result Bitcoin fell by more than 5% after that Tweet, while Tesla shares also dipped.
The catalyst which then caused a further, even more drastic selloff was the statement by Chinese financial industry bodies banning the use of cryptocurrencies in payment and settlement. However, most market participants saw this as a new ban by the Chinese government and simply overreacted to it.
If you read the statement clearly, then you can see that state-owned financial industry associations reiterated the 2017 crypto ban, whereas the People's Bank of China simply extended the ban to services previously unaffected by it. From now on these institutions must not accept virtual currencies, or use them as a means of payment and settlement. They are also excluded from providing exchange services between cryptocurrencies and the yuan or foreign currencies.
While retail traders are easily spooked by such news, leading them to exiting their positions at a loss, whales and the ultra rich elites know how to spot a buying opportunity – which was the case when Bitcoin dropped to mid $30k levels.
The rebound in Bitcoin is strong so far, even after some shots across the bow by the U.S. Treasury Department calling for new rules that would require large cryptocurrency transfers to be reported and the FED about to flag the inherent risks cryptocurrencies pose to financial stability.
This only allows one conclusion: Bitcoin is here to stay and it’ll come back even stronger than before. A first indication whether whales are leaning more towards being bullish or bearish can be obtained by analyzing the net perpetual and futures positions.
The long-to-short ratio spiked to 1.24 around noon on May 22, indicating that bulls are having the upper hand by 24% (Figure 1). However, this is a rather narrow view of the current market situation, because some of these pro traders may have waited to enter the market after some more downward pressure.
To obtain a clearer picture, one should zoom out and realize that major dips – also known as black swan events – are not that rare when you compare this bull run cycle so far with previous ones. In Figure 3 it’s clearly visible that Bitcoin also went through a choppy mid bull run phase during the 2016-1018 bull run cycle. So, it’s not uncommon for Bitcoin to drop massively, followed by a further mind boggling rally to new all time heights.
What has been striking in the last few days, however, is that it’s primarily new investors who have sold their coins. The big whales even added more Bitcoins to their wallets. In Figure 4 you can see that whales holding a minimum of 1,000 BTC in their wallet have eaten up the Bitcoins that were sold by weak hands, holding at least 1 BTC and max. 1,000 BTC.
If someone were to judge whale activity, then trading volume is one of the best indicators for that. If the volume peaks coincide with the price bottoms, then whales are actively buying up the dip.
This has been apparent during the dip to $36,000 on May 21 as well as during the dip on May 23, when spot exchange volumes surpassed $5.6 billion in just 4 hours, which is a rare event after a just 10+% drop in Bitcoin’s price. This is even more striking, when you compare it to the daily average trading volume of roughly $11 billion over the last month.
As a result, by combining the net future data with the spike in trading volume, it’s safe to say that whales still have an appetite for more Bitcoin. This is highly likely the perfect time to follow suit and invest in crypto as well.
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