What’s Going on With Cryptocurrencies: The Big Picture (Part 1)

Apr 14, 2020 • 3 Min Read

(Please note that our senior digital analyst David Grider, who writes our weekly crypto column, is sitting in for Tom Lee in this particular note. This is part one of a three-part series. Tom will return to writing Tom’s Take shortly) Part 2 is available here. Part 3 is available here.

In the current market environment, with the sharp price volatility seen in Bitcoin (BTC) and cryptocurrencies generally in the past 12 months, it’s fair for investors to ask, “What’s going on?”

While follow on contagion and spillover from the global economic chaos is the easiest answer, I think that the situation deserves a closer look, as there might be market nuances worth examining in detail.

I see a number of potential issues that cryptocurrency investors need to better understand. Last month on March 12th and 13th we saw unprecedented panic selling, with exchange inflows spiking sharply and prices crashing by 50%.

Secondly, the trading infrastructure, the plumbing so to speak, saw liquidity evaporate and spreads blow out amid a huge surge in transactions, which created bottlenecks and backlogs that exacerbated the problem. Liquidity and spreads still remain well below pre-selloff levels.

In any big selloff, there are cascading effects, such as structural liquidations ...

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