Babbitt Column | Bitcoin has experienced two extreme quotations in half a year. What do they have in common?

Within a short period of half a year, the blockchain industry has experienced two extreme quotations.

The first time was on the evening of September 25, 2019. Bitcoin fell by more than 20% within 24 hours. Some small and medium-sized market values ​​fell by as much as 50%. The incident occurred late at night. The decline triggered a series of short positions. Some media said This was the 9.28 tragedy.

The second time was March 12, 2020, the same thing, the same rhythm, this time even more fierce. Bitcoin has fallen by 40% in 24 hours. The decline of other small and medium-sized digital currency is even more unbearable. The decline has basically reached 60% -70%. Basically all the people who have increased leverage have been eliminated, regardless of your It is 20 times leverage, or 10 times, 5 times, or even 2 times. As long as you are long, you are almost out of liquidity.

This time the decline was deep and fast, exceeding everyone's imagination, directly hitting many people's confidence in digital currencies, and some big Vs even announced "withdrawal."

Generally speaking, in the philosophical sense, anything that happens must have both its contingency and its inevitability. But if an event happens twice in a short period of half a year, then we have to think more about the inevitability behind it. We need to extract some common features from these two events, summarize some lessons, and look forward to next time When this happens, we can respond better.

Therefore, we separate these two events and look at them separately.

First, the first extreme market

The background of the first plunge, I can give you a brief introduction.

The situation at the time was that on the one hand, Bitcoin rose from a low point of 3,200 US dollars to a maximum of nearly 14,000 US dollars. went;

On the other hand, the halving time is less than a year, and the market has begun to halve.

Second, the second extreme market

If the last extreme market has happened for half a year, and you do n’t remember many details, then the latest extreme market is believed to be still fresh in memory, and some people may still be scared when they think about it, even shivering.

Let me help you sort out the background of this extreme market. On the one hand, bitcoin started from a minimum of $ 6,000, and rose all the way to over $ 10,000 and reached a maximum of $ 10,500;

On the other hand, the halving this time is less than two months, and the market agrees that the halving will bring a bull market, and even thinks that Bitcoin will slowly break through the new high step by step before the halving. Many big Vs expressed similar views at the time:

No more bitcoins below $ 10,000.

Bitcoin will weld $ 10,000.

Then, in the short term, Bitcoin dropped to $ 9,000; then, suddenly, a plunge occurred.

Consensus and reversal

The two consecutive positions have been separated by half a year. Although there are some differences, the two have the same commonality. We need to summarize this commonality, because such things will happen again in the future. When this happens, we need to be alert in advance.

1. A long period of slow rise in the early period

These two plunges have one thing in common. They are very good in the previous period. After a long period of slow rise, they have already seen a huge increase from the previous low. For example, at the time of 9.25, there has been an increase of nearly 4 times from the lowest point; the latest 3.12 this time, from the previous low, has also increased by 1 times.

Under this premise, the market has gone through a long-term rise, and there is a demand for correction itself .

If you change the scenario, for example, the price of the digital currency market itself is already at a very low position, then at this time, the space for the plunge will be relatively small, and the probability of the plunge will become lower.

2. Fundamentals are hugely positive and market consensus is strong

It is true that the long-term rise in the early period will easily cause the market to pull back. This is a prerequisite, but it is not a sufficient condition. Because in a long-term bullish market, it is normal for the market to experience a long-term rise, but not every pullback will cause extreme market conditions, and not every pullback will fall like this two times, nor will it Caused a huge amount of liquidation and serial stampede, so there should be some special reasons for this extreme market to occur.

This special case generally corresponds to the benefit of a certain fundamental level. For example, the halving is only 2 months. For example, the blockchain industry is recognized by the state as a strategic development industry, such as the launch of Libra, etc. These are all fundamental level benefits, and this benefit itself has indeed greatly promoted the industry. Role, can affect the entire market for a long time.

Fundamental positives are of course major positives, but such positives are generally reflected in long-term market prices and do not directly correspond to short-term prices. What really determines the short-term price is another factor, such as short-term capital entering the market, such as leverage, such as short-term news.

Our understanding of fundamentals is not necessarily wrong. For example, is the bull market bound to come? I think a bull market will of course come; will that halving bring a bull market? I still think that halving will bring a bull market; for example, is it a long-term good for the blockchain that the country regards the blockchain industry as a strategic development industry? Of course, long-term benefits! These are all right, but these are long-term effects. The long-term is a very long process, and it does not directly determine the short-term price.

Because there are some fundamental fundamental benefits, markets that originally had huge differences rarely reach consensus. The achievement of this consensus will be reflected in the price, and will also be reflected in the choice of more people plus high leverage, resulting in Accumulation of risk.

3. Huge increase in the short term

If the fundamentals are good, they can be regarded as long-term reasons, so the early market has risen for a long time, even if they are medium-term reasons. However, these two reasons are not enough. Generally, a short-term reason is needed to detonate it.

According to my observation, this short-term reason: the market's short-term cumulative increase is huge.

For example, on September 25, 2019, the market had a cumulative increase of 100% in 15 trading days;

For example, this time on March 12, 2020, the market's cumulative increase in 40 trading days reached 100%.

In general, there is an indicator in the technical analysis called the 60-day cumulative increase. In these two extreme markets, there were not even 60 trading days. It took only 15 and 40 trading days to achieve a 100% increase in the short term.

If it rises too fast, it will naturally be more fierce when it falls.

In other words, at this time, the market has brought together long-term factors, medium-term factors, and short-term factors. The short-term, medium-term, and long-term have achieved rare resonance. The consensus is so strong that it releases huge energy in a short period of time, and once the energy is released, the subsequent funds will definitely not keep up. The real determinant of the market is the subsequent entry funds. After the consensus and energy are released at one time, the subsequent funds and energy will definitely not keep up, so the result is: once the market forms some strong consensus However, the market is prone to encounter large reversals.

On the other hand, because the market consensus is so strong and so optimistic about the market, many people have added leverage. Regardless of low leverage or high leverage, they feel safe and may amplify their earnings. When the market has the strongest consensus, it is usually when the leverage ratio reaches the highest. Because there is a large amount of leverage, when the market suddenly reverses, this reversal will be fast, and then the high leverage will be the first to open the position, which will cause the price to fall, and the price drop will cause the spread of panic, leading to a large number of People sell, which in turn causes more people to sell out, and then more people sell regardless of cost, leading to extreme market conditions. Generally speaking, as long as Bitcoin has fallen by more than 10% in a short period of time, we must carefully observe market sentiment, because the spread of panic mood is likely to cause a series of problems such as subsequent DEFI financial settlement, leading to extreme market conditions.

Fourth, the conclusion

Has been rising for a long time, let us relax our minds; there are major positives, let us take it for granted; short-term accumulation of huge gains, let us forget why, let us add leverage, and then the extreme market has disappeared .

Of course, even if extreme quotes have already occurred, as long as we do not increase leverage, do not wish to achieve richness in the short term, have sufficient capital reserves in hand, and with the concept of long-term investment, then the extreme quotes will not only cause us too much The impact, instead, is a good time for us to accumulate chips. If it is possible to accurately identify the occurrence of extreme market conditions, to avoid or even profit from it, it is of course the best, but this requirement is too high, I do not make such delusions.

Finally, a brief summary:

The small market value and high volatility of the digital currency market are the root causes;

Excessive leverage in the market is the direct cause;

Short-term market consensus is too strong, triggering market reversal is the trigger;

Consecutive liquidation and DEFI liquidation are secondary reactions triggered;

Eventually these reasons come together, and extreme quotations arise.