The speculative frenzy around Bitcoin reached a peak in December as Coinbase became the #1 app on the iPhone and their client base overcame Schwab. After hitting $19,500 on December 7th, Bitcoin sparked a rally in other coins and tokens that was simply astounding.
Unlike Schwab or other online brokers, Coinbase gives investors only 3 choices. Bitcoin, Litecoin or Ether. After Bitcoin peaked on December 7th, investors rushed into the other two choices, driving up Litecoin 320% in 5 short days, with Ether doubling in 12 days. After Bitcoin’s rally briefly stalled, it peaked at 19,874 on December 17. On December 20th Coinbase added Bitcoin Cash as a 4th alternative and the inevitable happened. Bitcoin promptly sold off and Bitcoin Cash doubled, no doubt over the confusion of novice investors who were likely confused by a cheaper Bitcoin trading below 4000 and either bought Bitcoin Cash thinking it was a bargain or panicked to sell Bitcoin because they may have mistakenly thought it had suddenly collapsed. The combination of profit taking, fear, confusion and perhaps manipulation (these are unregulated markets) resulted in a stunning sell-off.
Once the dust settled, with accusations of front running flying, the frenzy led to a 3 day sell-off that cascaded rapidly on the morning of December 22. Bitcoin, Ethereum, Litecoin and Bitcoin Cash fell from their December peaks by 48%, 47%, 64% and 67% respectively. Within hours we witnessed a sharp rally off the V bottom that saw Bitcoin and Litecoin jump 50%, Ether gain 60% and Bitcoin Cash gain an incredible 100% from the low. These gains have been mostly held as of this writing but not without significant volatility. Despite the rally off the bottoms, investors new to this speculative market had their confidence severely shaken as they discovered how ephemeral their recent gains had become. The Bitcoin Cash Crash stole Christmas for a lot of new investors.
This should remind us all that although the financial markets appear strong and relatively calm, there is a beast just under the surface that can raise its ugly head at any moment. The madness of crowds is alive and well, as we have just witnessed. And in case you think this is only isolated to that crazy cryptocurrency world, Bitcoin futures just started trading on the CBOE and Goldman Sachs announced they are starting a cryptocurrency desk due to client demand. This show is may be coming to a theatre near you soon.
Let’s all be thankful for the gift that the stock market has been this year and count our blessings. For those in the cryptocurrency markets, keep your seat belts fastened and be prepared for more turbulence.
Fortunately, Red Swan Risk has perfected the tools, consultancy, and best practices that prepare our clients for the unknown.
Contact Red Swan Risk today for a demonstration of our efficient solutions for these challenges and more.
today for a demonstration