What Caused the Crypto Sell-off? Analysts Look to the Usual Suspects
It is no news to cryptocurrency traders that last week ushered in a rapid sell-off of virtually all crypto assets, with altcoins faring particularly baldy. The savage one-third drop in total market cap from the end of July to mid-August has seen analysts scrambling for answers.
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The SEC, Culprit Number One
Many attributed the drop in sentiment to the U.S. Securities and Exchange Commission’s decision to delay its approval or otherwise of the CBOE’s listing of the VanEck SolidX Bitcoin Trust Bitcoin ETFs to September 30th at the earliest. Indeed, the market’s immediate reaction to the news was severe.
Ether-dumping ICOs, Culprit Number Two
Other reporting pointed to an ether sell-off by ICO teams, as a product of, and circularly contributing to, ether’s continued price weakness and bearish sentiment in the wider market. Excellent investigative reporting by Bitsonline found a lack of evidence supporting that argument and references to facts that did not, in fact, exist.
Flight to the U.S. Dollar, Culprit Number Three
News outlets are now reporting that eToro analyst Matisyahu Greenspan has attributed the crypto slide to a general flight from commodities such as gold and oil — as well as risk-on assets — to the greenback. Among those assets, Greenspan counts emerging market currencies, with the Turkish lira in the spotlight, and cryptocurrencies.
“As the United States moves to tighten its economy and avoid strong inflation, they’re taking action that is strengthening the Dollar. Because the US Dollar is the global reserve currency, many smaller economies rely heavily on a stable exchange rate with the greenback. So too, as the Dollar is being seen as a stable store of value at the moment, there really isn’t much incentive for people to store their money in digital assets.”
Indeed, seasoned cryptocurrency reporter William Peaster from Bitsonline reported that “a spike of Istanbul citizens has visited Bitcoin.org… as the lira has acutely plummeted on the heels of a widening diplomatic spat between Washington and Ankara”. The spike in bitcoin interest was noted by site administrator Cøbra:
There’s been a MASSIVE 42% increase in visitors to https://t.co/OsFgRFRRZb from Istanbul as the Turkish Lira plummets. This is how Bitcoin takes over the world, not through ETF’s and “HODL”, but through replacing fiat currencies as they fall apart!
— Cøbra (@CobraBitcoin) August 13, 2018
The correlation between dollar strength and crypto weakness is an observation that influential trader Peter Brandt made back on August 13th:
— Peter Brandt (@PeterLBrandt) August 13, 2018
Hang On… Wait a Minute!
Four days is a lifetime in market analysis and over that time Greenspan appears to have pivoted 180 degrees. On the same day as Brandt’s tweet, he wrote:
“As we’ve stated before, crypto-assets tend to correlate most closely with high-risk markets. So it would stand to reason that a sell-off in stocks might have a negative effect on crypto. Looking at the numbers, however, it seems the crypto markets are rather unaffected by the emerging market currency rout and are showing a mixed performance.”
It is no slight on an analyst to change their opinion of the market forces at play in any given trend, even four days on. Explaining the past can almost be as difficult as predicting the future. But the failure by news outlets to reference the four-day-old about-face absolved the market analysis of any responsibility to contextualize.
One can’t help but recall the notorious 2003 speech by then-president George W. Bush on improved U.S. intelligence community cooperation.
In it, he famously assured the audience that “The left hand now knows what the right hand is doing”. Unfortunately, his accompanying gestures offered his left hand as his right, and vice versa. While it didn’t necessarily make the statement false, it offered a physical signal that, whatever was going on, the gravity of the assertion outweighed the conviction of its deliverer. Nuance is entirely acceptable. But it does deserve acknowledgement.
Have your say. What do you think explains the rapid sell-off in crypto markets?
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