When markets fell across the board in early March due to the Covid-19 pandemic, bitcoin tumbled alongside them. While leading up to March, bitcoin’s market cap of around $170 billion was still tiny when compared to equities, treasuries or gold, the sheer magnitude of a 50% drop in two days compared to other assets certainly raised some eyebrows, writes CoinShares analyst Christopher Bendiksen.

However, its subsequent rebound to pre-Covid-19 levels without intervention or external stimulus has also unsurprisingly garnered attention in the investment community.

Understanding how and why these movements occurred are important questions to answer; not least because knowing the mechanisms that were at play could help investors get a better understanding of which metrics are useful in gauging ongoing volatility risk.

Understanding also helps us appreciate just how resilient bitcoin can be.

So, what happened and why?

In short, we believe the tumble was ignited by fear spreading from other markets. It then became particularly severe due to bitcoin’s unique market structure. The overall usage of leverage in bitcoin spot and derivatives markets is generally large, but in the time leading into March 12 & 13, leverage levels were abnormally high, making them extra vulnerable to shocks.

(Excerpt) Read more Here | 2020-07-15 12:01:00
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