Diamond Hands Vs. Crypto-n00bs And Why The bitcoin Price Dipped

Sunday morning, 18.04.2021, the cryptocurrency market suddenly entered the red zone. Bitcoin and most major digital assets lost between 5% and 20% of their value overnight, leading to a massive liquidation of market positions totaling nearly $10 billion.

At the time of writing, the largest cryptocurrency Bitcoin is trading at $55000. The coin has fallen by almost 12% in 24 hours and even was testing the $51,400 mark at that time. This was the lowest value since mid-March. Ethereum, the second-largest digital currency, lost 13% of its value, XRP - 25%, SNTVT - 15%, TON Crystal - 8%. Now the situation has stabilized. 

A few days earlier, BTC renewed its all-time high (ATH) at $64,869. Thus, Bitcoin more than doubled in price since the beginning of the year, with an annual growth rate of almost 800%. As a rule, the rapid growth is accompanied by a correction. When the price updates the highs, speculators begin to fix profits, provoking a downward spiral. The price goes down until the traders decide it is time to buy crypto assets.

So, what happened on Sunday in the media field?

Bitcoin began a correction on Wednesday, April 14, right after the ATH update. The fall gradually gained momentum and on Sunday morning, April 18, the price went into a steep peak. Within half an hour the coin fell in price by more than $7000, and within the next half an hour gain its price again. 

It's called a "flash crash". This time it was due to a confluence of circumstances: a low liquidity weekend, market readiness for a correction, unverified rumors about punitive measures of the U.S. Treasury, and the general negativity of the week. But it was the negative news that played the biggest role.

Tweet with unverified information

Early Sunday morning FXHedge Twitter account with almost 140,000 followers published information that U.S. Treasury Department allegedly plans to apply sanctions to several financial institutions for money laundering via cryptocurrencies.

U.S. TREASURY TO CHARGE SEVERAL FINANCIAL INSTITUTIONS FOR MONEY LAUNDERING USING CRYPTOCURRENCIES - FXHedge (@Fxhedgers) April 18, 2021

The tweet coincided with the flash crash, and many market participants made a causal connection between the two events. The tweet quickly spread across social media and created panic in the market. In the cryptocurrency community, this phenomenon is called FUD (fear, uncertainty, doubt). Later this tweet was deleted.

The reliability of information from anonymous sources, published by an anonymous account with a dubious reputation, raises many questions. In practice, the Treasury Department doesn't fine or punish anyone, the Justice Department does. In addition, all investigations into illegal activities among financial institutions are kept strictly confidential and such information rarely becomes public.

Negative informational background

During the week, there were several unfavorable events, which did not have a pronounced effect on the market but created a snowball effect.

First, it became known that Turkey is preparing a ban on the use of cryptocurrencies as a means of payment. This news alarmed the cryptocurrency community because Turks are among the most active Bitcoin users.

Second, an accident at a coal mine in China's Sichuan province triggered massive power outages. This led to a collapse of the Bitcoin hashrate, as the largest mining pools are located in this region. According to different resources, hashrate had dropped by 30-48%.

Third, Localbitcoins, a popular P2P cryptocurrency exchange platform, began blocking user accounts en masse on suspicion of money laundering or involvement in illegal activities. These measures were perceived as another step in the direction of stricter regulation in an industry that was originally conceived as a world free of control and oversight.

Why negative news scares novice investors?

Inexperienced investors are very susceptible to negative news. The traditional media tells them that cryptocurrencies are a high-risk area, which makes them afraid of losing their investments. But what the media doesn't tell them is that cryptocurrencies are an asset that increases its price in the long run. 

Also, novice investors cannot distinguish fake news from real news, which makes them panic. Experienced investors differ from inexperienced ones in that they have patience. They know that they will get their profits from the investment anyway, so they don't panic. 

I also want to share a few rules to help novice investors.

Rules and advice for beginners

It is impossible to protect yourself from risks on the crypto market, but it is not difficult to minimize losses. Here are a few tips to help avoid unnecessary mistakes.

Portfolio diversification

You should not invest in one cryptocurrency, it can lead to a loss of money. It is better to use 3-4 different cryptocurrencies - the loss on one crypto will be offset by the profit of the others.

Persistence and calmness

The way of any person - a series of ups and downs. Investors are no exception. A cold mind and control of emotions will not allow you to make mistakes in a critical situation. And the accumulated experience will help to avoid their repetition in the future.

Constant education

The world does not stand still - yesterday's successful solutions today can leave you with nothing. Constant self-education, observation of experienced colleagues, reading financial literature will expand opportunities and open new promising directions.