Yesterday #bitcoin broke its 2021 all-time high of $69,000, but hours later collapsed back to $59,000.
How did this happen? Why did bitcoin make a sudden, seemingly random, severe downward move?
A few years ago, I had the opportunity to be part of @MimesisCapital, the pioneering family office to embrace a bitcoin standard. During my tenure, Mimesis played a crucial role in funding the early stages of many well known bitcoin startups you see today. While at Mimesis I published an article titled, Why does bitcoin's price make random, sudden downward moves?
Unlike equities (stocks), which tend to be traded aggressively on earnings days (days when companies’ performance and future guidance fundamentally change), bitcoin tends to be traded aggressively on seemingly random days.
This strange phenomenon tends to confuse traditional commentators and journalists as they struggle to find any news piece that could have affected the price so drastically.
The large downward moves are often driven by excessive leverage in the system—irresponsible people going 10x long right before the new all time high.
These leverage liquidations result in an ugly feedback loop:
1. Price falls.
2. Highly leveraged longs get liquidated (forced sellers).
3. Price falls further.
4. Less-leveraged longs get liquidated (more forced sellers).
5. Traders see falling prices and jump on the trend.
6. Price falls.
7. Repeat until the fragility of this leverage is eliminated.
This imbalance, driven by excessive leverage, results in volatility. This volatility results in coins getting transferred from weak hands to strong hands that understand bitcoin. After weak hands sell, or are forced to sell, the price must adjust to the new equilibrium.
A new base of strong holders is then built at a more sustainable price level, and then bitcoin’s parabolic bull run continues, as it has for 15 years. This is all due to individuals converging on bitcoin as a Schelling point because of its superior monetary properties.
🇦🇷 A landlord and tenant in Argentina's 3rd biggest city Rosario, have sealed a rental agreement to be paid in #Bitcoin each month - the first agreement of its kind in Argentina - CoinTelegraph
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Yeah you.
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