Bitcoin crashed from $58,000 on Sunday to $45,000 early Monday in a 22% bloodbath before recovering quickly to $54,000.
Crypto Twitter likes to joke about bitcoin markets turning bearish when Asia-based traders come online on Monday, but data actually supports this case. Bitcoin likes to pump on Fridays and Saturdays, and dump on Sundays and Mondays. But no one seemed prepared for Monday's 22% bloodbath.
"OUCH! Bitcoin plunges 10% on worries prices are excessive. Elon Musk tweeted on Saturday that prices seem high," said analyst Holger Zschaepitz.
On U.S. exchange Kraken, Ethereum was sold for $699 and Bitcoin sold for $45,000 before the market recovered. "Almost a $7,000 hourly candle. That has to be by far the largest hourly move in history," said analyst Scott Melker.
This article will examine five reasons why Bitcoin fell from $58,000 to $45,000 in under 24 hours on Monday, correcting $7,000 in under an hour.
1. Bitcoin was up 80% in February
While it's exciting that Bitcoin reached $58,000 on Sunday, this topped off an 81% gain in February and a whopping 262% gain since November. While price targets have gone as high as $115,000 by the summer by institutional investors, we know we won't get there linearly.
2. Weekends are volatile
According to analysis from the Block and internal data at Redeeem, Sundays and Mondays are some of the worst time periods for bitcoin. In fact, surges are so popular on weekends that since the beginning of May they account for 40% of price gains since 2020.
Corporate paychecks are usually paid on the 1st and 15th, and paid on Fridays if it falls on a weekend, which could explain some of the positive price action early in the weekend, followed by profit taking late in the weekend. Without institutional buying on weekends, prices often struggle to find a floor.
Before Elon Musk announced a $1.5 billion bitcoin buy for Tesla's treasury on a Monday, we had never need an ATH on a Sunday or a Monday. Maybe traders go to church, maybe they like to bet on football games. Whatever the case, Bitcoin has always struggled on the weekends.
3. Wall Street is closed
The New York Stock Exchange (NYSE) and NASDAQ are the biggest stock exchanges in the world and they’re closed 80% of the year. Many critics of Wall Street question whether banks can handle the digitization of our global economy while being closed more often than they're open. This could explain why Bitcoin attracts high volatility on the weekends, especially with margin trading.
Bitcoin has an enormous reliance on Tether (USDT). Most of the biggest bitcoin purchases come through ACH and wire transfers of U.S. Dollars on exchanges. Even though $10 billion of Tether inflows is only 1.4% of Bitcoin’s $700 billion market cap, the fraction of Bitcoin’s daily transaction volume for USDT accounts for is closer to 70%, which is over 10X more than the US Dollar itself.
This would explain why Sundays and Mondays might be bearish for Bitcoin, since USD purchases into Tether have been delayed for 24-48 hours and the market is dominated by margin trading and technical analysis.
4. Short sellers love Mondays
According to Bitcoin.com, many miners in China have been short selling bitcoin since 2018 to hedge against falling digital asset prices. While in the long term it’s easy to see that Bitcoin continues to see massive price appreciation, there are endless reasons to short bitcoin on shorter time periods. Asian markets wake up many hours before North America, so many Chinese mining companies will open their shorts while Americans are sleeping.
One Chinese miner interviewed explained that a large number of local miners are short selling as an act of self-defense against volatility. He said that unless they short sell BTC for stability, some miners will be “ultimately eliminated.”
5. Janet Yellen criticized Bitcoin
The Monday jitters were accompanied by fresh criticism of Bitcoin from U.S. Treasury Secretary Janet Yellen, who reportedly referred to it as "inefficient" while repeating claims that it is used in criminal activity. She is the first women to play the role as Treasury Secretary, and while more crypto friends than her predecessor Steve Mnuchin, Yellen has a lot of power over Bitcoin's price.
Her first objective is to finalize a $1.9 trillion stimulus package to get the pandemic under control to achieve herd immunity, so the "success on the public health front is the key metric we're watching," she said, "and we need to make sure the people who are most affected by this crisis are not permanently scared." She also pointed to the real unemployment rate above 10% as a high priority right now.
Her most clarifying comments on Bitcoin come during discussions with reporters in December 2017, saying "the Fed doesn’t really play any regulatory role with respect to bitcoin other than assuring that banking organizations that we do supervise are attentive that they’re appropriately managing any interactions they have with participants in that market and appropriately monitoring anti-money laundering and Bank Secrecy Act responsibilities.”
Yellen's husband, George Arthur Akerlof, is an American economist at Georgetown University and University of California, Berkeley. He won the 2001 Nobel Memorial Prize in Economic Sciences.
Bitcoin is down 7.6% at the time of writing, trading at $53,200, but it's still up 11.5% on the week and 64.2% on the month.