Chainalysis has released a study to explain on the basis of large amounts of data-the price decline of Bitcoin since the all time high in December to February. The company has, in particular, identified two reasons that have driven the crypto-currency market and, in particular, Bitoin.
Chainalysis was founded in the year 2014, and referred to itself as a leading provider of Anti-money laundering Software for Bitcoin. The company works with global financial institutions such as Barclays and crypto-currency exchanges and has formal partnerships with Europol and other international law enforcement agencies. The investigative tools were used, according to the company website of these authorities, money laundering and cyber criminals to successfully track down and arrest.
The latest study of Chainalysis comes to the conclusion that the course was caused by the decline of Bitcoin from $ 20,000 to temporarily 6,000 USD mainly due to two reasons:
- News on the regulation of Bitcoin, which have influenced the volume of trade significantly.
- A lack of indicators (“Fundamentals”), and this is not due to the fulfillment of the great expectations. This deficiency has led to a “herd behavior”, which has recorded all the Exchanges and crypto-currencies.
Chainalysis justified the second Argument is that traditional markets have established market-based indicators, which will enable investors to understand the price and trading volume fluctuations.
In contrast, the absence for crypto such indicators and fundamentals of currencies, the price fluctuations in a context. On the basis of which the Individual is oriented to the mass. When it comes to a great “Sell-Off”, tends to the majority of investors to follow the mass (“herd behaviour”).
The first reason is obvious. While the price of Bitcoin reacts according to the study, sensitive to regulatory news, the price rises if there is a positive mood. This was in December. The CME and the CBOE have announced a Bitcoin Futures and published, and thus a huge Hype triggered. The Bitcoin seemed to be just before the breakthrough into the Mainstream.
There is a Hype around the entire world, which meant, in particular, in the USA and Europe is enormous growth for the crypto community went. Many stock exchanges had to suspend the mid/ end of December due to the extreme demand for their new registrations.
With the extend awareness and to the Public in the Mainstream, the interest of the policy to crypto, however, has increased currencies. With the numerous negative comments by governments, as well as the threat and enforcement of regulatory measures in South Korea, China and Russia, according to data from Chainalysis to a geographical shift in currency pairs USD / BTC, EUR / BTC, USDT / BTC and JPY / BTC.
Also noteworthy is the importance, or dominance, has reached the Tether (blue line) is from our point of view in this figure. Since the 21. December has become a Tether, increasingly, the most important trading partner for Bitcoin. This shows, in our view, the great influence of Tether has on the Bitcoin market!
Confusion in January and February
The decline in the price of Bitcoin in January and February was extremely. How Chainalysis, due to the price decline in January and February, largely on a lack of indicators for the crypto-currency market.
Between the 17. December and 6. February lost the Bitcoin exchange rate around 70 percent. In the traditional stock exchanges in the world course correction leg a decline of at least 10 per cent defines a bear market as a decline of over 30%. Investors can find no explanation as to why the course is so extreme. In retrospect, Chainalysis explains the Situation as following:
As investors sought the financial and economic principles to determine the influence currencies, Crypto, were December and January, characterized by stunned speculators, frightened small investors and a few whales, these facts are used to move the market in their favor.
Correlation of Altcoins with Bitcoin
Of the fall in prices was not only affected by the Bitcoin. All the Altcoins in price based on the Bitcoin, and were also extremely strong in the course. Often we have pointed out on this website already on the leading role of the Bitcoins for the entire crypto currency market.
This is now confirmed by the study. The prices of Altcoins correlate with Bitcoin prices. This has Chainalysis the correlation coefficient (Pearson coefficient) is calculated, which is a measure for the degree of linear relationship between two characteristics is and at +1 a complete positive connection goes out. A value of more than +0.5 indicates a strong connection (in red in the figure).
The figure shows that Ethereum, Ethereum Classic, Litecoin and Monero correlate most strongly with the Bitcoin exchange rate (+0.5). However, Ripple has a very weak connection to the Bitcoin price will tend towards 0.
According to the results of the study, the Bitcoin price was also an early indicator for the case. BTC was the first to fall on the 17. In December, the Altcoins started at the 20. To follow in December.
Net Inflow on the stock exchanges in the cryptocurrency market
The study has also found out, that the Net cash flow (the”Net Inflow”) of Bitcoin on exchanges depends heavily on the price movements of Bitcoin. The following, from Chainalysis-generated graphic shows the net inflow or outflow of Bitcoin.
The decline in the price of Bitcoin was accompanied, as the graph shows, a significant outflow of capital from the crypto-currency exchanges. Many investors are probably taken from the your profits or panic that you have made sales, in order to minimize the losses. The herd behavior is also shown here.
To Mt investigation. Gox Sales
As we reported a few days ago, the Mt. Gox Trustee already started last year in order to sell Bitcoin from the insolvency mass. This showed how sensitive the Bitcoin price responds to such messages.
This was also investigated by Chainalysis. The result: The volume was compared to the total volume is rather low. The sale took place mostly in a pre-existing downward trend. The only now published message triggered an unfounded panic and hysteria, which in turn can be related to the lack of market indicators.
Conclusion of the study
In the result of the study, the company comes to the conclusion (freely translated):
If these principles are established (note the Red.: Market indicators), will stabilize the crypto currency market and a sustainable balance. The fundamentals of the market are related to principles, allowing traders to make informed decisions by using technical analysis instead of speculation.
The article of Chainalysis: https://blog.chainalysis.com/bitcoin-price-drop/
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