The price of Bitcoin has just fallen by -30% in a few minutes. The price of the crypto currency plummeted to a low of 5618 Dollars. It reached its lowest level since May 2019. The movement took place in a few minutes (here the chart of Bitcoin).
There is probably no clearly identifiable cause for this. It is probably the current process of de-leveraging. Investors who hold Bitcoin, but also other assets, have to close positions in order to avoid margin calls for their stock positions.
We are currently experiencing a liquidity crisis. Financial conditions have deteriorated dramatically in a short time (currently worse than at any time since the financial crisis). As a result, money is no longer easy to spend, fewer loans are being granted. After years of carelessness, credit ratings are once again playing a role. In this sense we could almost say: the corona virus is forcing the financial markets to confront economic reality.
No safe heaven anymore
Warren Buffett once said the sentence: “only when the tide goes out do you discover who’s been swimming naked“.
And now the tide is out. The excesses of recent years with a liquidity party triggered by the central banks are currently undergoing a correction. The rush is followed by headaches, also and not least with Bitcoin.
Everything will now be tried (politics and central banks) to keep the wheel turning. Perhaps Draghis legendary sentence from 2012 (“Within our mandate, the ECB is ready to do whatever it takes to preserve the Euro. And believe me, it will be enough”) must now somehow be repeated. The financial markets now need a “game changer”, something to end the negative dynamic.
Will Christine Lagarde be able to do this at the ECB press conference today? Assets like Bitcoin were considered a kind of safe haven against a crisis in the financial system. Now, however, it appears that Bitcoin prices are falling no less than those of classic stocks or other risk assets. Not such a good sign.