Bitcoin (BTC) dropped sharply in the last 24 hours as a strangled guppy was seen forming on the charts. This resulted in a quick move leading to a drop to $8500 level. It is no surprise that with a drop like this, the permabulls have gone silent and the bears can now be heard quite loudly with voices like, “This is the end of Bitcoin (BTC)” and “What if Bitcoin (BTC) never rises above $10,000 again?”. To a first time traders, these voices are a matter of life and death especially in circumstances like these. The knee jerk reaction in this case for most amateur traders is to panic sell resulting in heavy price drops which are dragged downwards as long as the panic selling continues and as long as the market makers know that the prices can drop further.
Once the panic selling dies down, market makers aka whales start filling their bags with Bitcoin (BTC) pumping the price back up. While pumps and dumps are normally attributed to penny stocks, it can apply to any financial asset that can be easily manipulated due to a small market cap (comparatively) and more importantly low trade volumes. Situations like these are optimum for market makers to play their games. Such manipulation or shaking off of weak hands happens more often when market makers know that an asset can appreciate significantly in value in the near future.
A good example of such manipulation is the stock, MOMO. The company reported spectacular earnings, the P/E ratio was very favorable but the stock kept tanking. It continued to fall for weeks even while it was trading at $20 which was considered highly undervalued. However, soon afterwards, the prices starting rising once the market makers were done. The stock then climbed to $46 in a matter of just a few weeks. The same is true of Bitcoin (BTC) and most cryptocurrencies. While most institutional investors and smart money realize that a 2014 style scenario is highly unlikely to unfold considering recent developments, they do realize that most investors trading Bitcoin (BTC) and other cryptocurrencies are first time investors and they do not know that. So, they will continue to instill fear in the market and manipulate the price action such that it creates chaos and fear so the mainstream investors can leave their Bitcoin (BTC) on the table and run away.
Bitcoin (BTC) is a deflationary asset and its value will continue to appreciate over time. The current cost of mining a Bitcoin (BTC) is $8672 according to Coinwarz Calculator whereas the price of Bitcoin (BTC) is $8561. That means if you are mining Bitcoin (BTC) at the moment, you will be mining at a loss. The mining difficulty has also taken a new turn this month and is now at an all time high of 4,143 G. In all fairness, it couldn’t get significantly worse than this. Apart from mining difficulty increases with time, the recent trouble with Iran and similar developments in the world could also prop up the price of electricity in some countries. All of these factors point to the fact that Bitcoin (BTC) is extremely undervalued at the moment and an inevitable price appreciation in the near future might be around the corner.