stockmarket

20.04.2020 – Special Report. A small foretaste of the possible destruction by politics: Bitcoin has just corrected by double digits. The reason was – as yet unconfirmed – rumours about money laundering investigations. The first bulls are already jumping in again – buy the dip. But the event should serve as a warning example of what can come.

Heavy E-correction at the weekend

This was a false alarm. Please move on, there is nothing to see here: Bitcoin easily corrected 15 percent over the weekend in Asian trading. Ether was down 18 per cent at one point. The financial blog ZeroHedge reported that long positions worth around 1.7 billion dollars were liquidated in one hour alone. In total, around 10 billion dollars were lost for around 927,000 trader positions, as FX Street explained.

Alleged money laundering investigation

The sell-off began on Sunday night (local time) and the community is still puzzling over the reasons. Presumably we are dealing with a coordinated short attack. The starting point was apparently a tweet according to which the US Treasury Department is allegedly launching a major investigation into money laundering with cryptocurrencies against financial institutions. Specifically, user FXHedge reported this at 4.42am on 18 April: U.S. TREASURY TO CHARGE SEVERAL FINANCIAL INSTITUTIONS FOR MONEY LAUNDERING USING CRYPTOCURRENCIES – SOURCES. Various crypto websites played the issue. But the news agencies Reuters and Bloomberg had no such news ready.

Bitcoin ban in Turkey

Otherwise, energy problems shook the Chinese province of Xinjiang; many miners may have lacked electricity. And finally, Turkey has just struck: the central bank in Ankara banned the use of Bitcoin as a means of payment from 30 April. Because the anonymity behind the digital tokens poses the risk of irretrievable losses. This makes Turkey the first country to ban Bitcoin, which Ankara wants to use to support the weakening lira. But otherwise we have not discovered any reasons for the bitcoin sell-off.

Turbulence at Dogecoin

Dogecoin had previously gone in the other direction: The small cryptocurrency jumped from 6 to 47 cents. Tesla boss Elon Musk had caused the price explosion for the currency, which was introduced as a joke, with a tweet before the weekend. Even experts were scratching their foreheads in the face of these events: “The crypto world is waking up with a bit of a sore head today,” said Antoni Trenchev, co-founder of crypto lender Nexo, in an interview with Bloomberg. The Dogecoin rally was a ‘peak party’. Especially since Bitcoin had set out for new records and Coinbase was about to go public. The market has now paid the price for all the euphoria.

Conciliatory tones from the USA

Fodder for the bulls has also recently come from monetary policy. Last week, Jerome Powell, head of the Federal Reserve, even compared bitcoin with precious metals: BTE “is a little bit like gold” – it is more for speculation and not a means of payment. Which sounded like an all-clear to the ears of many traders – no Bitcoin ban. Meanwhile, there was even quasi-official tailwind from the US: ex-CIA deputy chief Michael Morell denied in an analysis that cryptos are mainly used by criminals. For the lobby group Crypto Council, he wrote that blockchain technology is even highly effective in the fight against gangsters.

Pump and Dump

Our conclusion: it can happen that fast. A little gossip on Twitter and large addresses push the price up or down at will in a nice pump-and-dump scheme. That’s how it is when the market lacks breadth. The weekend’s BTC event also makes it clear that the e-community is very nervous and believes the danger of a state ban is quite likely. If major states ban e-currency trading, prices will plunge to zero in no time. If you are involved in Bitcoin and co. you must always be aware of this. Whereas exactly such events as this weekend bring the volatility for interesting trades. Bernstein Bank continues to keep an eye on the asset for you – we hope you are always right!


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.