Bitcoin is a pretty volatile asset and often sees wild fluctuations that leave most newbies worried about their investment. The coin has the tendency to crash at least once every month, and that too at the end. And after the crash, Bitcoin often comes back stronger to make a higher high and a higher low. This kind of pattern is able to take BTC forward even though there are wild swings in between. But the recent crash after Elon’s comments on Twitter have investors worried is another Bitcoin crash on the way. And will it be like the black Friday crash during March 2020?
The March 2020 Bitcoin crash
There was a huge descent in the prices of Bitcoin during March 2020. And the recent crash suggests that the March 2020 price drop was even more worrisome than today. In March 2020, there was a huge impact of inverse swaps on the market due to a liquidity crisis. During the time, the price of Bitcoin in future markets was much less than the spot market. This was because a large block of sell orders wasn’t able to liquidate due to the crisis. This resulted in futures trading at a 12% discount as compared to the spot market.
Exchanges that provide derivative and future service also had a tough time. BitMex went down for 25 minutes, and, being the largest derivate exchange, that is not a small thing. Comparing that with the current situation, it is unlikely that something similar will occur as such gaps are not seen even during highly volatile movements.
Why is the correlation being drawn?
On May 13, the price of Bitcoin was 4% less in the contracts market rather than the spot exchanges. This difference lasted for only 5 minutes but did bring up the same question is market tension building up. Are we going to see a liquidity crisis? And could there be a crash? I don’t think so. Another factor that suggests that this time is much different than that of March 2020 is the delta skew.
In 2020 the delta skew made a high of 59% that shows insane panic and fear, but this time around, it is just 14% which is more or less near to neutral. Even though the price of bitcoin has fallen almost 30% in the last week, it is more due to Musk and less due to any kind of fundamental problem. We have to wait and see if the price of Bitcoin recovers as Elon posted that Tesla has not sold any of its Bitcoins. At the time the tweet was made, the market did stop selling, and there was an immediate rise in the number of buyers.
What are your thoughts on the correlation of the March 2020 Bitcoin crash to the May 2021 crash? Do you think they have something in common? Let us know in the comments below. Also, if you found our content informative, do like it and share it with your friends.