Covid-19 Fear Is Wreaking Havoc with Bitcoin Prices
The last three months have seen an unprecedented change in the world in which we live. A pandemic, a once in a hundred-year disaster, has resulted in a large number of tragic deaths. As the world fights to contain the virus, much of it has been put under lockdown. The world is currently in recession, one far worse than the Global Financial Crisis of 2007.
Bitcoin has been struck hard as well. In mid-March, the price crashed by 52 percent on one day. This drop in value is one of the largest seen since the introduction of Bitcoin. It is not only Bitcoin that is taking a hit; equity markets, gold, and silver have also been the targets of sell-offs. The question that currently begs an answer is, “are dropdowns going to continue, or are they temporarily over?”
All markets are incredibly volatile. The USA Volatility Index is approaching levels not seen since the invention of Bitcoin. In mid-March, the value of Bitcoin halved. It dropped from $7,500 to $3,750, although in the 24 hours that followed this drop, the price of Bitcoin recovered to $5,750.
Fear and Greed?
Alternative.me uses several sources to produce what they call The Fear and Greed Index for Bitcoin. The base number used by the index is 100. Currently, the index is at 15, a level that indicates extreme fear in the market. In the last month alone, the index has ranged from a low of 11 to a high of 21. This range is an indication that investors are worried. These numbers are significant.
The current level of the Fear and Greed Index on equities is 1. This number means there is no longer any belief. In 10 days up to the end of March, the equity market saw a selloff of 30 percent. Dropdowns of this magnitude have never been seen before. As the US and other countries go into lockdown, it seems natural to think the dropdown will continue.
Even with institutional and government intervention, further dropdown is likely to occur. However, although a dropdown is anticipated, the effects may not be seen until later in the year.
Investors in cryptocurrencies are well aware of a bubble pattern, going from disbelief to euphoria, back to anger, and disbelief. After the first selloff comes a period of predictable upwards movement when investors expect things to calm down.
What is Next for Bitcoin?
Under the present circumstances, it is reasonable to expect Bitcoin to succumb to further downward momentum. Bitcoin is well known to be a high-risk asset. Bitcoin is often the first asset to be sold. In times such as these, people need cash on hand, rather than volatile cryptocurrency.
The majority of fear and panic may be in the price already. Historically, after 80 percent or more dropdown in price, the value stabilized and then slowly began an upwards rise. It is not illogical to think the same thing will happen in this case. Bitcoin investors must keep a sharp eye on the 200 weeks moving average chart, as well as the one-week chart. If the 200-week moving average holds, the market may be seeing a capitalization bottom.