Large Investors Catalyst Behind Crypto Market Rout, Says Chainalysis

Bitcoin’s safe haven narrative fell through as large investors liquidated their holdings in search of cash and less risky assets. Cryptocurrency analytics firm Chainalysis reported that 70% of exchange activity came from institutions and high net-worth investors, per Bloomberg, March 19, 2020.

Anatomy of the Recent Downturn

Bitcoin was trading in the $8000’s before crashing through support at $6,000 and hitting $3,900 in the span of a couple of days. These concerns came from the Coronavirus.

The virus has wreaked havoc for financial markets across the globe. Bitcoin was no exception. Investors with sizeable positions ended up liquidating their positions, causing the market price for the genesis cryptocurrency to tank by over 60% at its worst.

Bitcoin asserted itself as a risk-on asset that thrives when the global economy is sound and overall sentiment is in an uptick. It makes sense, because regular investors with large portfolios wouldn’t want to hold a speculative asset as they watch their stock-heavy portfolios lose value at warp speed.

10-1,000 market sales of BTC accounted for 70% of all exchange activity. Rather than a slew of small investors, a decent number of large investors exited their positions, causing Bitcoin to freefall.

HODL Game Stronger Than Ever

CoinMetrics recent newsletter highlights that this rout was fuelled by short-term investors. Coins that were recently bought were the ones that caused the dump. Similarly, Chainalysis‘ chief economist, Phillip Gladwell, confirmed this to Bloomberg:

The amount of Bitcoin sent to exchanges in the last eight days represents about 5% of all available coins, suggesting that most Bitcoiners are happy to hold.

In short, these two insights combine to form a compelling narrative: short-term institutional investors were behind the market sell-off. This is believable and explains why so many coins moved when investors and HODL-ers were accumulating since the beginning of 2020.

Macro conditions in the global economy are hindering asset prices. Especially for speculative assets like Bitcoin. The latest dip has nothing to do with Bitcoin, and sentiment around the network, and everything to do with a deteriorating economy with investors who are in dire need of cash.

HODL-ers are still holding strong, having moved a very tiny proportion of their coins. Accumulation is likely to resume soon.