Exclusive: 10 Crypto Minds Weigh in On Post-Crash Bitcoin and Its Future
Once people see inflation hitting, they will stampede towards gold and bitcoin. The recent bitcoin price crash is very different from what the market experienced in 2018. The fact that BTC can theoretically hit zero is "a good thing in the long run."
As investors are looking for safety in cash, can bitcoin (BTC) become more attractive than cash? How low might BTC go and how long will this downturn last? What to watch for before making an investment decision in the nearest future? What can we expect from institutional investors and what are the long term perspectives for bitcoin?
We asked industry players to share their insights on this. Here's what they said.
Bitcoin vs cash
Despite cash is now emotionally more comfortable than bitcoin, it may not be so safe after all, said Guardian Circle CEO/Co-founder Mark Jeffrey.
"The U.S. government injected USD 1.5 trillion into the system yesterday — and the stock market recovered slightly for half an hour before dunking even lower. Think about that: the market shrugged! And the monetary base was inflated significantly, ultimately diluting all dollars everywhere. This will keep happening in larger and larger amounts," he stressed, adding that once people see inflation hitting "THEN they will stampede towards gold and bitcoin."
"But bitcoin, being digital, is easier to own and manage, so I expect it will eventually win out over gold," he said.
Meanwhile, Johnson Xu, Chief Analyst at TokenInsight, a token data and rating agency, told Cryptonews.com that the question is not whether BTC is better than cash or not, because these are "two different kinds of assets for drastically different purposes, although some industry players believe bitcoin will replace cash/fiat system, it won’t be an easy task and is impossible to realise in the near term."
Bitcoin being better is also not the reason why institutional investors are investing in bitcoin, "but because they believe bitcoin might deliver a significant return in the future or for diversification purpose."
"Institutional investors have complex needs, thus it is not an easy task to uncover the specific needs of each institutional investor in order to attract them to the industry," said the analyst.
Meanwhile, Gary McFarlane, a cryptocurrency analyst at Interactive Investor, told Cryptonews.com that the level of institutional interest may have been overstated "given that such investors might be expected to be less flighty than individual private investors," but that the market turmoil we are seeing suggests it's still heavily dominated by retail. That said, a crisis can produce opportunities, therefore "the possible launch of a state digital currency in China and Facebook’s Libra would be key validators that may attract renewed institutional interest [in bitcoin]."
Meanwhile, Tian Chuan, founder at Bitcoinese, a Chinese media organization focused on mining, derivative trading, and crypto regulation, reminds that BTC is still a risk asset: "So, it depends on your preference for risk."
However, some find that Bitcoin doesn't really have to prove anything.
Mati Greenspan, Founder of Quantum Economics, told Cryptonews.com that, Covid-19 doesn't make a case for BTC, but while the financial systems have "dropped the ball" in 2008 financial crisis as they can act irresponsibly, Bitcoin is designed to act responsibly.
"It's a marvellous invention and in my view nothing short of the future of money on the planet. You don't need to convince anybody to use it. People will use it because it's in their best interest," the Founder said.
Dovey Wan, Co-founder of California-based investment company Primitive Ventures, stressed that the recent bitcoin price crash is very different from what the market experienced in 2018.
"It's not triggered by a specific type of an asset, it’s NOT initiated from a market structural flaw, it’s not even about the financial market itself. The fundamental reason for the panic in front of an epidemic comes from the lack of confidence towards economic growth, future prosperity, and losing hope in most governments and distrusting politicians in power," Wan told Cryptonews.com.
Other experts seem to agree with the idea that Bitcoin should spend less time proving itself. Crypto will tip and go mainstream once we build a product that people both want and can use, said Lou Kerner, Partner at crypto advisory firm CryptoOracle. He added that this revolution is being led by people and organizations that do not ask permission. It's not being led by institutions. "Institutions will follow. Build great products. Everything will follow," he said.
As for the regulations, TokenInsight's Xu believes that crypto regulation will have positive progress regardless of the market condition and is welcomed to be a part of the next generation financial market, thus helping the industry to mature and gain recognition from the traditional investors. McFarlane also said that governments will move ahead with the Financial Action Task Force (FATF) recommendations, "although some may have bigger fish to fry, bringing delay to those efforts." Furthermore, Chuan opined that once the U.S. government provides a clearer crypto regulation, institutional money will come.
How low? How long?
Commenting on how low can the world's most popular crypto drop, Lou Kerner said that there is no "floor" to bitcoin or any other asset, other than USD 0.
On the other hand, according to Jeffrey, the fact that BTC can theoretically hit zero and "there is no Fed coming to rescue it" is a good thing in the long run:
"It doesn't require artificial respiration. It is ultimately stronger. It is more 'honest'."
However, the same fact that there's nothing stopping it from going that low - it's simply a possibility - "it's just a factor of how much somebody is willing to pay for it," Greenspan explained. He said in a call that people also get over-leveraged a lot. "And when there's a lot of leverage on the table, that leverage needs to come in the deleveraging process across all of the markets."
He likened the situation to a car crash, and we are currently in the initial shock phase in which just about every market is selling off. But luckily, there's enough liquidity in the market to handle this, he argues, which wasn't the case during the 2008 financial crisis. Greenspan believes that we are exiting this phase now, which will allow the industry to take a more thorough look into the situation and find solutions. However, he added, it's too early to talk about the market getting on the upwards trajectory.
McFarlane argued that we should expect more falls, at least until the coronavirus outbreak is under control, as BTC is being driven by the same forces fuelling selling of other asset classes.
"A floor for prices may form around last year’s low at USD 3,200 put in during December 2019 but much depends on the duration of what looks like a coming recession. The damage has been immense and will take months for the price to recover to anywhere near USD 10,000, despite the looming halving. A 50% crash in value concentrates the minds of prospective buyers, reminding them of bitcoin’s speculative aspect and extreme volatility," he said.
Xu believes that the market should see a relief bounce to correct some negative price actions driven by this irrational behaviour. When it comes to how low the price could go and how long this downturn could last, he said that the market is dynamic, particularly during such an extremely high volatility period. "The market needs to spend some time to adjust and reassess the condition based on the overall market sentiment," he added.
Glen Goodman, a cryptoasset analyst and the author of The Crypto Trader, explained that bitcoin has broken down through an upward trendline that held firm for the past eight years, which is relevant as that long upward curve was the base of a lot of traders' hopes: "To see it broken in such a dramatic fashion will be very damaging to the morale of bitcoin bulls. Suddenly one of their favourite narratives underpinning hopes of USD 100,000 bitcoin is gone."
Similarly to McFarlane's analysis, Goodman said that the next major support level is at USD 3,100 - the previous low-point during the 'crypto winter' of 2018, he said, adding that BTC was actually "very close to breaking that level last night before it rebounded strongly." But, if that level is broken too, then the key level it must hold is all the way down at USD 1,150, because that was the peak of the previous boom in 2013, and then, if that level is broken as well, then the bitcoin bull narrative will be dead and gone, and there will be no natural bottom to the price at all."
However, Goodman added that the downturn may be over sooner rather than later because it isn't a 'natural' downturn and is a result of the coronavirus-related stock market panic.
"When the panic is over, bitcoin may well recover quickly, or at least return to doing its own thing, rather than being influenced by the stock market," he said.
Jeffrey estimated that despite we are in completely uncharted waters, once "weak hands" in bitcoin are shaken out — which will take some time, possibly months — "I think Bitcoin will be more rationally priced." "Rationally, it should be worth more than it is today. A lot more. But people are not rational right now," he said, adding that "it may even see a strong resurgence as cooler heads recognize its power to resist."
Meanwhile, in the opinion of Tian Chuan, the market has already bottomed. "Longs have been liquidated and I don't think we will see USD 3,800 before Bitcoin halving," he said. How long the downturn will last though depends on the U.S. stock market, Chuan argued, given that - besides BTC price highly correlating with the S&P index since early February - the data shows the selling originated from the U.S. exchanges "and I believe it's due to the stock market crash."
"And while [BTC] may go to zero, it can never die. <...> So long as there is one miner and one wallet somewhere in the world, it can self-heal, self-regenerate, even back to all-time highs. That is an insanely resilient thing," said Jeffrey.
Making an investment
Many are looking at the pointers on how and when to make an investment in crypto market, and the current situation is making the task more difficult. McFarlane finds key market-health determinants to be bond markets and the progress of the virus. The equity, bond and crypto markets will fall further if the current crisis turns into a credit crisis with rising corporate credit defaults.
"There are going to be bounces higher along the way but don’t be tempted to buy the dip until there is visibility on the slowing of the virus, the prospect of recession ahead and the advent of impactful coordinated fiscal intervention," he said.
Greenspan added that the price of BTC can go anywhere between USD 100 and a million by the end of the year, and people need to keep that in mind when making an investment. However, he added that "the entire global economy has grinded to a halt, virtually overnight. Basically in a month, it kind of went from booming to not moving." Therefore, he also advised watching how the virus outbreak is developing, saying that "we need to see some of these levels tapering off, [and] only then will we understand more thoroughly when business can resume." Furthermore, as we're exiting the initial shock phase, "within the next few days or weeks, we should be able to see some emerging trends for investors, that could be something worthwhile to take advantage of."
"Risk management is the key to survive in this extremely volatile market condition, Xu said. When the market experiences such large movement, liquidity can be extremely thin and spread can be unusually large reflecting the balance between supply and demand can tip abruptly, creating a substantial impact on prices. When making investment/trading decisions, people should be on a high alert and understand that the market condition can be changed rapidly. Risk management is super important during a thin market."
He also added that a certain number of institutional investors are always presented in the market, and "that they will not easily exit the market simply because of a sudden downside movement in the market."
Meanwhile, Chuan said that he will look at the open interest data of leveraged long and short position, explaining that "in a hyped market like this, the truth could be on the side of the minority."
"Portfolio science tells us to buy assets, over time, and rebalance the mix of our portfolio as our risk appetite changes," Kerner told Cryptonews.com, adding that "every else is voodoo flat earth bullshit. It's not more complicated than that."
Meanwhile, if you're considering investing in the traditional markets, Jeffrey suggested to "stay away from anything centralized."
"We have no idea what a disruption of this magnitude will ultimately do to governments and corporations. But we do know they are all interlocked — in many ways, a single point of failure due to globalism," he said.
'Extremely bullish' outlook
It seems that the long-term outlook remains positive. George McDonaugh, Co-Founder and Managing Director of publicly listed cryptocurrency and blockchain investment firm KR1 plc, told Cryptonews.com that there will certainly be repercussions of bitcoin's "extreme roller-coaster ride," which could mean further volatility in the short term, given that the price started at c. USD 7,800, plunging to USD 4,000 USD, and rebounding somewhat to USD 5,600 overnight.
"Fundamentally, however, our long-term outlook remains strong, and when confidence eventually returns after this Black Swan event has stabilised, we expect crypto markets to maintain their overall upwards trajectory as demonstrated over the last few years," McDonaugh said.
"While Bitcoin critics will pounce on today's 20% price crash, a day does not a market make," said in an emailed announcement Paolo Ardoino, Chief Technology Officer at crypto exchange Bitfinex. He argued that bitcoin is "a battle-tested asset" and that it's bound to prove its underlying strength as a genuine store of value. BTC has grown during a period of central banks' massive quantitative easing, and as these policies will "surely begin to fail" in time, bitcoin will "prove its metal."
Dovey Wan added that bitcoin has never been a safe-haven asset in a conventional sense, and retail investors consider it as a speculative asset, while institutional investors treat it as an alternative investment.
"What Bitcoin is hedging against is the exactly the inevitable aftermath of large-scale global crisis, especially under the regime of incompetent, corrupted and authoritarian governments: social order breakdown, bank run, hyperinflation and confiscation. Bitcoin is a resilient, self-sustainable asset without any government interference, which will further prove itself this time during the pandemic. The geopolitical ramifications of the robust Bitcoin economy are mind-boggling, the long-term future of Bitcoin is extremely bullish," she concluded.
At pixel time (19:16 UTC), bitcoin trades at USD 5,143 and is down 15% in a day and 43% in a week. The price dropped 50% in a month, trimming its annual gains to 31%.
With additional reporting by Simon Chandler, Nicole Jao, and Linas Kmieliauskas.