Bitcoin is constantly gaining momentum, but why is its price falling? - Interchain Pulse

Author: Block Impression

March 9th was a historic day that dealt a heavy blow to investors around the world:

The US stock market was slaughtered, falling by more than 7%, triggering the circuit breaker mechanism that failed to be triggered during the 2008 financial crisis; the Japanese stock market plummeted by 5%, the European stock market plummeted by 4%, and crude oil plummeted by 30%, creating a magical reality where oil is cheaper than water...

Bitcoin also failed to escape the clutches of the plunge, falling more than 7% on the day. Combined with the previous decline, the price returned to pre-liberation levels overnight.

It would be a lie to say that I am not heartbroken. As a coin hoarder, I have invested from more than 6,000 US dollars at the end of last year to 10,000 US dollars. I thought I could just sit back and wait for the bull market to come, but I didn’t expect that a tornado would come, and all the floating profits of the past few months were swept away.

To be honest, this wave of decline is quite confusing. It was said that Bitcoin had no connection with the traditional financial market. No one could have imagined that the black swan of crude oil would indirectly trigger a plunge. What is even more abnormal is that long before the arrival of "Black Monday", Bitcoin received a series of good news at the national level. Not only did the price of the currency remain unmoved, but it also took a completely opposite form. Why is this?

1. Why did the price of the currency fall instead of rising?

Here are some good news for you:

On March 4, India overturned the ban on cryptocurrencies and the exchange reopened the fiat currency channel. After two years, a market with a billion people once again waved to Bitcoin;

On March 5, South Korea officially incorporated cryptocurrency transactions into the legal system, heralding the legalization of cryptocurrency;

On March 7, a French court ruled that Bitcoin is a valuable asset, similar to legal tender.

These are all positive news at the national level. No wonder Binance’s Zhao Changpeng would shout out on Twitter:

“It doesn’t feel like we’re going to be hovering around $9,000 for much longer. The recent events are more than just announcements, they’re seismic shifts.”

Indeed, if it were in the past two years, with so many accumulated positive factors, Bitcoin would have inevitably risen by 90 degrees to pay tribute to it.

But this time, the opposite happened. Bitcoin fell from around 9,000 points on March 4 to 7,600 points. The rebound caused by the accumulated positive factors was very small. Why is this happening? Has the price of the currency been completely decoupled from the fundamentals? Do people no longer care about the legitimacy and popularity of Bitcoin?

All the reasons boil down to one point: the panic of the financial crisis is spreading.

2. Bitcoin faces its first test

There are no precise indicators for the arrival of a financial crisis, but there are precursors: stock market crashes, capital flight, bank credit crises, rising government and corporate debts, sharp currency depreciations, and central bank interest rate hikes... Note that these do not happen all at once, but instead occur one after another like dominoes.

Look at the present: global stock market bubbles have collapsed one after another, the Federal Reserve has made its first emergency interest rate cut since the financial crisis, commodity crude oil has collapsed, and the global economy has been hit by the epidemic... The familiar drumbeats are approaching step by step, pessimism continues to spread, and everyone can only prepare for the worst.

We always say that Bitcoin is a product of crisis and that it has its own "antibodies" to resist financial crises. Is this really the case?

Strictly speaking, Bitcoin has not yet gone through a complete financial cycle. It was born in November 2008 and did not have actual value until the pizza incident in May 2010. This is the first time that it has officially faced the test of a crisis as a valuable asset.

Bitcoin is indeed not closely related to other traditional financial markets, but this does not mean that it will not be affected by the overall economic situation. If a crisis really comes, Bitcoin will not be able to remain immune, and it can even be said that Bitcoin, with its weak fundamentals, may perform more exaggeratedly than the stock market.

There are three reasons. First, the main market force cannot go against the general trend and violates the economic law. Second, as the most important group of Bitcoin, miners need a large amount of capital flow to maintain the operation of the mines. Third, everyone is a domino in a crisis. Compared with survival, belief in Bitcoin is not important.

These three factors will become the direct source of Bitcoin selling, and will intensify as the financial crisis becomes apparent. But if Bitcoin can survive this test and show excellent anti-fragility, it will surely lead the market for decades in the future.

3. So what should we do now?

A few days ago, Sequoia Capital issued a warning letter to its invested companies, titled "Be Prepared to Deal with the Black Swan of the Epidemic". It advised all companies to be prepared to experience turbulence, lay off employees who need to be laid off, and secure cash flow to prepare for the winter.

Although we cannot be sure whether it is a financial crisis or just a temporary economic downturn, we can be sure that the global epidemic is not over yet. It will take several quarters to confirm that the virus has been contained, and the economic downturn will not take a few months. So what should we do as cryptocurrency investors?

1. Be prepared for long-term investment. A long time ago, I also thought that the short-term approach of buying on dips and selling on rallies was a wise move to make more money, but in fact, no one can always hit the market turning point, and continuing this approach will only make you lose the big picture while picking up sesame seeds.

2. Try not to touch contracts. Since the end of last year, many people have started to play with contracts, but in the end most of them have nothing. If you are confident and must play, then formulate a trading strategy, strictly implement it, and be prepared to endure 3 times, 5 times, or 10 times the pain and despair of ordinary people.

3. Be cautious when buying at the bottom, and only invest money you can afford to lose. 2020 is too magical. The black swans of the epidemic and crude oil have turned the financial market upside down. No one knows what terrible things will happen next. At the beginning of the year, many big Vs said that it would be difficult to see Bitcoin below 10,000 again, but they did not expect it to fall below 9,000 or 8,000 soon. Once a new crisis comes, you can't imagine what Bitcoin can be smashed into under panic. Therefore, when you see the price you like, don't rush to hand over all your chips. It may be better to invest with money you can afford to lose.

Finally, it’s the old saying: It’s not the strongest or the smartest who survive, but the ones who can adapt to change the most. This is true for you, me, and Bitcoin.