Flash Crash Halts Crypto Bull Run
VYSYN Ventures Weekly Insights #66 — El Salvador officially makes Bitcoin a legal tender as market takes surprise tumble
Tuesday brought a surprise flash crash in the price of Bitcoin which dragged the rest of the highly-correlated cryptocurrency market along. BTC lost over $7K in just a few hours, falling from above $50K to below $43K during this period. The crash took the market by surprise given that many were anticipating further increases in price.
The flash crash found buyer liquidity in the low-$40ks and has since begun consolidating in the $40k range. This movement shifted the dynamics of the market which were previously bullish since smart money began accumulating Bitcoin in July.
In the latest VYSYN Release, we highlight the current situation of the cryptocurrency market, paying attention to the state of the market before the flash crash and how things may have changed within this short period. We analyze the expectations of cryptocurrency traders and investors, taking note of how experts think that the market will develop from its current situation.
The El Salvador counter-effect
September 7th was expected to be a significant date in the life of Bitcoin but it didn’t unfold as many anticipated. The day marked the official launch of Bitcoin as a legal tender in the South American country of El Salvador. Apart from this significant adoption event, Bitcoin’s price had settled above the significant psychological level of $50K. Bitcoin price opened the day at $52.7K, following days of significant buying pressure.
The momentum was certainly on the bullish side with many beginning to anticipate a return to all-time highs. However, the market suffered a severe reversal with Bitcoin dropping from over $50k to the low-$40k range in a matter of hours. While the actions of whales may have initiated the selloff, researchers say that the selloff triggered margin calls on over-leveraged positions, which led to a high volume liquidations in the market. Over $1 billion in liquidiations were catalyzed as a result of the drop.
The El Salvador event may have been the perfect moment for whales and larger holders to take profit. After three months of preparation, the date for EL Salvador accepting Bitcoin as legal tender was widely known and market participants were prepared. Selling pressure by larger holders may have catalyzed the sell-off. The market adage of “buy the rumour, sell the news” rang true in this case.
Analysts expect consolidation as altcoins also crash
Trader Tone Vays has envisaged the possibility of two scenarios unfolding depending on the immediate reaction of BTC price after the flash crash. According to Vays, if the price of BTC recovers fully in a quick bounce, then more bullish pressure would be expected. This could see the price push towards the $55K level soon. Otherwise, there could be a sideways consolidation for a short period, after which the market will pick a direction, depending on the prevailing dynamics.
Popular market analyst, Michael van de Poppe appears to share a similar sentiment with Vays. In a more direct assertion, Poppe predicts that if BTC, while launching a recovery, manages to close above $47K, it will provide a good buying opportunity for traders. In such a situation, the recent crash in price will be considered an outlier.
The flash crash was not restricted to Bitcoin alone but impacted the entire cryptocurrency market. Ethereum dropped by 17% and immediately bounced off key support below $3.1K. Like BTC, ETH also mounted an immediate recovery which is yet incomplete, leaving the market trading in vastly different dynamics.
Before the drop, everything looked bullish for altcoins as they outperformed Bitcoin and several hit record highs. The current situation puts ETH price in a sideways consolidation that leaves uncertainty over the next significant movement.
Several altcoins mirrored the behavior of ETH by falling through critical support and recovering into a consolidation phase. Polkadot dropped from above $35 to below $22 before bouncing off existing support. ]
At the time of writing, DOT has recovered to above $28, with bullish momentum looking intact. Cardano displayed a similar pattern, falling from above $2.9 to just above $2. It has also shown signs of recovery, trading above $2.5 at the time of writing.
Solana stands as an outlier among altcoins. A close observation of the Solana price action shows that it was not immune from the flash crash that swept the market. However, Solana quickly recorded a full recovery. Solana continued its upward momentum in the aftermath and has since recorded new record highs.
Crypto Trader Takeaways
With over $1 billion in leveraged positions liquidated on September 7th, the recent crash stresses the importance of managing exposure and risk in the cryptocurrency market. Historically, the cryptocurrency market has been extremely volatile and those that overexpose themselves with derivatives may suffer significant impacts to their portfolio. It is prudent to limit such exposure to only a percentage of overall portfolio value. In this case, traders expose themselves to the upside of potential movements while also limiting their downside risk.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown to USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocations, versatile marketing support, and tech assistance.