Bitcoin Crashes to $5.5K in Global Market Sell-Off; More Pain Ahead?

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Bitcoin suffered its bloodiest day in the past seven years as its price plunged by close to 29 percent in just 30 minutes.

The leading cryptocurrency hit an intraday low of $5,578 shortly after the London morning bell, crashing steeply as traders liquidated more than $700 million worth of long positions on BitMEX. The downside move pushed bitcoin’s year-to-date performance in negative territory, negating all the gains it had made at the beginning of this year.

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BTC/USD plunges by $2,000 as traders exit positions on Coronavirus fears | Source: TradingView.com, Coinbase

The crash was not an accident. So it appears, the plunged maximized after weeks of bitcoin’s gradual bearish moves as traders assessed the rising number of Coronavirus cases in the US and rest of the world. Yesterday, the World Health Organization (WHO) declared the event a “global pandemic.”

Hours later, President Donald Trump announced in a televised address that the US is putting trave restrictions on Europeans, driven by Italy’s disappointing efforts to tackle the virus. A combination of all the negative events hammered down global stock markets, with equities across Asia, Europe, and the US all plunging into their bearish territories.

Even gold, which is perceived as safe-haven in the times of an economic crisis, fell sharply. At the same time, the US dollar index and bonds surged, turning into the only insurance assets to have moved upwards against the Coronavirus pandemic. That led many to believe that investors turn to cash more than bitcoin or gold in times of pandemics.

The Failure of Bitcoin’s Technical Indicators

Coronavirus has put bitcoin in a unique situation. The cryptocurrency came into existence when the market was attempting to recover from a recession back in 2008. And it grew exponentially ever since, never having to be in the middle of another financial crisis, until now.

It is, therefore, wiser for traders to partially shift their strategies per global market catalysts. For instance, the Federal Reserve announced to inject $1.5 trillion worth of temporary liquidity into the system but the stock market still remained red. That shows how investors are no longer treating stimulus packages as a way to flip their near-term downside sentiment.

On the other hand, bitcoin is testing support at $6,000, a very strong floor as seen during the 2018’s crypto bust. But its ability to hold the level totally relies on additional liquidity which, unfortunately, is missing as people prefer to hold cash over other assets.

Fed’s trillion-dollar cash injection may help but the situation can only improve for real once the Coronavirus is contained. Therefore, it would be too risky to rely on bitcoin’s technical indicators in these unique times. The cryptocurrency could face more pain ahead if the virus risks grow further on investors’ sentiment.

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