Bitcoin’s Nasty Thanksgiving Surprise Cost Billions

It has been a rocky and wild ride in the financial markets in 2020. The recovery to all-time highs in stocks has been stellar, but the relative move in Bitcoin has been something else entirely. With nearly zero percent interest rates in the United States, and with negative interest rates in Europe and Japan, Bitcoin has yet again attracted massive new interest.

Central banks have printed the equivalent trillions of new dollars and gone even deeper into a seemingly endless debt growth cycle to add stimulus against the effects of the COVID-19 recession. There are fears that this can and will create asset bubbles. Bitcoin has just reminded its owners just how volatile, fragile and unstable it and rival cryptocurrencies can be. And it’s happening on a day when most Americans might not even be looking at prices of stocks and yields on their bonds.

Many people around the world have argued that Bitcoin and other cryptocurrencies are a form digital gold, a store of value, or as a currency still in formation. It is becoming more evident that Bitcoin and other cryptocurrencies have simply become their own asset class. Newer asset classes can behave quite differently than the asset classes that have existed for decades or centuries.

Bitcoin’s peak price of close to $19,400 on November 25, 2020 (according to Coindesk.com) is up from less than $7,200 at the end of 2019. The website coindesk.com showed Bitcoin’s price down 11.58% at $17,030.46 and the website Conbase.com just showed Bitcoin down 11.38% at $17,034.39 earlier this morning.

To put this move into context, particularly for those who prefer to consider Bitcoin and cryptocurrencies as virtual currencies, moves of this magnitude just do not happen in real currencies. If this was the Digital Zimbabwe 100-trillion dollar note or a Digital Drachma then it would be more explainable. This is not even it’s worst single-day drop in percentage terms.

The price of physical gold peaked at roughly $2,075 per ounce on August 7, 2020, sold off about 8% closer to $1,900 over the course of several trading days. Gold has since fallen further, with prices at back at mid-July levels. Still, the move to $1,815 per ounce is a 12.5% drop that has taken more than 90 days to play out.

What has happened to Bitcoin since Wednesday is not just profit taking as traditional U.S. financial markets are closed for Thanksgiving day. Bitcoin trades globally. Its exchanges also rarely to never sleep. When major market participants are sleeping or taking time off, crazy things can happen.

Despite recent backing by big-name investors, moves of this sort are not normal for most asset prices. Even if the move lower was worse in march of 2020, that was at the peak of panic when anything that could be sold as a source of funds was used as a source of funds. That was when the COVID-19 panic was at its zenith and when the financial markets were in all-out selling mode without rhyme or reason getting any say.

What will make the drop of Bitcoin stand out so much is that this did not begin to kick into until late Wednesday night in the United States. Many Bitcoin owners were already going to sleep or they were going into Thanksgiving mode. And many people might not have even realized what happened until hours from now. It was even worse earlier in overseas trading hours (nearly $16,800 at 4:30 AM EST per Coindesk.com).

There has been a lot of news regarding cryptocurrencies and Bitcoin. Only some of it may point to a drop, and some of the news should have already been factored in as cryptocurrencies were acting as though they wanted to challenge all-time highs.

24/7 Wall St. has recently warned that the publicly traded “Bitcoin Trackers” do not universally follow Bitcoin. It will be interesting to see how these trade when the U.S. stock market is open on Friday.

The Coindesk.com site has a note that Coinbase has ended margin trading, and it noted that transaction fees on the Ethereum network are rising. The Coinbase Blog has a letter to employees about an upcoming negative New York Times article that will be less than flattering, and the company is refuting it. CNBC quoted a top crypto lender noting that after gains of 160% this year 20% to 30% drops can and should be expected.

Another issue that has persisted in the ups and downs of Bitcoin and the prices of other cryptocurrencies is that regulatory fears come and go. U.S. President-elect Joe Biden’s choice of Janet Yellen as the Treasury Secretary in a International Business Times article has referenced Yellen as a Bitcoin Bear who called Bitcoin out as being “anything but useful” as recently as 2018.

Coinbase co-founder and CEO Brian Armstrong also tweeted about rumors that the Treasury and current Secretary Mnuchin were planning to rush out new regulation regarding self-hosted crypto wallets.

JPMorgan CEO Jamie Dimon was quoted on November 18 as saying that Bitcoin was “just not my cup of tea” even as the firm JPMorgan has warmed up to the underlying technology even if it is not quite trading cryptocurrency. Dimon’s view was that government regulation will become more stringent.

Do any of those recent points add up to a sudden double-digit loss that cost billions of dollars in total value?

Bitcoin’s current price, even after the plunge, is still up massively in 2020. CNBC quoted a total market value at $315 billion or so without tallying up the value of crypto-rivals. That figure changes with prices and as the 21 million Bitcoin cap comes closer and closer. The website Blockchain.com measured that the latest count of total Bitcoin outstanding as 18.554 million.

When Bitcoin’s price nearly hit $20,000 in 2017, it was followed by an immediate crash that took it to $6,300 by June of 2018 and then down to about $3,200 by December of 2018.

The price of gold was up about 36% from the end of 2019 to its peak in August. It was still up nearly 20% year-to-date on last look. That may seen excessive, but it’s not considering the recovery that has been seen in the equity markets based on so much COVID-19 induced stimulus efforts that have been taken around the globe.

The latest plunge in Bitcoin has been followed by similar and worse drops in Ethereum, Bitcoin Cash, Litecoin, XRP, and on down the line. There may be many reasons that Bitcoin and other cryptocurrencies have wild price swings. Sometimes it just needs to be followed up with a reminder that, even after more than 10 years in existence, there are some serious barriers and issues when considering Bitcoin and other cryptocurrencies as being fully established with absolute certainty like so many other asset classes.

The infamous 1980s Wall Street movie is well known for a quote that “Money never sleeps.” The same is proving to be true for Bitcoin and other cryptocurrencies, even if there are times when this newer asset class acts as though it could use a nap from time to time.

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