With my first ever blog post on Blockchain Decrypted… we’re starting with some big news.
The South Korean cryptocurrency exchange, Coinrail was hacked on Sunday, June 10th 2018. They lost approximately $40 million in cryptocurrency. Some believe this news, coupled with the announcement Friday that four exchanges are being investigated for price manipulation, is what has caused bitcoin and other cryptocurrencies to drop over 10%.
Among the sites that take this position are NBC News, stating “The heist at Coinrail, a relatively small South Korean cryptocurrency exchange, sent the price of bitcoin tumbling to two-month lows as it once again highlighted the security risks and the weak regulation of global cryptocurrency markets.” Implying that a partial hack of a small cryptocurrency exchange with weak security made an entire market worth hundreds of billions of dollars drop by 10%.
Is that the whole story, though? I don’t believe so. And what does all of this mean, anyway? Is there an opportunity here to potentially make some money? This blog post will address these questions.
So Coinrail was hacked, and lost some money. The circulating supply of bitcoin is over 100 billion dollars. Coinrail isn’t a huge player in the cryptocurrency exchange market, and they only lost a portion of their cryptocurrency. What does that have to do with bitcoin? Not much. It’s just a reminder that it’s important to put your money on a secure cryptocurrency exchange.
If you take an extremely pessimistic view, it could also arguably be said that it means other exchanges could be hacked as well. Is there anything in this piece of news that has caused bitcoin to drop by 10% in quality? The answer is no, absolutely not. The bitcoin of today is exactly the same as the bitcoin four days before the 10% drop.
Now let’s consider the news on Friday that four exchanges are being investigated for cryptocurrency price manipulation. Again, does this affect the viability of bitcoin as a cryptocurrency? While this is more directly related to bitcoin, the answer is again no. Stocks are manipulated a hundred times more than cryptocurrency is and an eye is rarely batted.
So, if this news isn’t actually that major… Why has the price of bitcoin and other cryptos dropped 10%? That’s a significant step down.
I believe that whales and market makers are manipulating the price of bitcoin and driving it downwards to create a buying opportunity. They want to lower it so they can buy it cheaper. This will then create a buying frenzy, and drive the price up making them a lot of money in the process.
The website Bitcoinist agrees with me. In the following article, they state that “The hack of Coinrail is not to blame for the flash crash. Market manipulators and panic sellers are.” Market makers are pushing the price of cryptocurrency down, likely with the intention of buying it at a certain, cheaper level.
Always remember the following (admittedly morbid) saying when it comes to trading: When there’s blood in the streets, buy property.
Bad news makes cheap prices for affected goods, creating opportunities for the savvy investor.
Which leads to my next question… If the manipulation hypothesis is correct, what can you do to take advantage of it?
If you assume that the drop of cryptocurrency prices isn’t just the cause of some bad news but is also manipulation, you have to ask yourself the following questions: What is the price that will trigger a large bitcoin/cryptocurrency purchase, driving the market upward? Will that even happen? What are the odds that this is the beginning of a strong cryptocurrency bear trend?
First, let me say that I’m not gifted with prophecy. It is remotely possible that this is the beginning of a massive bitcoin selloff and two months from now bitcoin will be at $2,000. However I am a seasoned trader and trust my instincts. Do I believe that is the case? Absolutely not. Here’s why:
The news just isn’t big enough. It’s not like there was a structural flaw found in cryptocurrencies, or there was an attempted 51% attack on bitcoin. This news hasn’t affected bitcoin one iota. It’s not even really about bitcoin, it’s just related to it. Even if market makers want to drive the price of bitcoin super low, they’d be struggling based on such weak news. The lower bitcoin goes the more people get excited at a potential opportunity and buy. So there needs to be a commensurate catalyst to really push bitcoin past its supporters.
Therefore the odds that this is the beginning of a severe cryptocurrency bear market are very low. If this is manipulation with a plan to make the value jump at a specified price, what exactly is that price?
This is the million dollar question. Anybody who says they know for sure is lying to you. All anyone can do is give you their best guess based on technical analysis. Here is my analysis:
There are strong support levels for bitcoin at around $6,800 and $5,800. If bitcoin breaks below $6,600 or so it’s likely going to $5,800 minimum. So what I did is choose a total amount of bitcoin I want to acquire at these bitcoin prices of $6,800 and $5,800 in dollars. I then bought 25% of that amount at $6,800. If it drops to $5,800 great – I’ll buy another 25% or 50%. If you want to be ultra conservative you can set a stop to automatically sell your bitcoin below $6,500 or so with the plan to rebuy it at $5,800. You’ll lose a little money, but the tradeoff is that it’s a little safer.
I’d honestly be very surprised if bitcoin went below $5,800. $6,000 is the historic reversal point for bitcoin, it’s hit that point multiple times and then reversed. I’ve made money off these reversals many times.
Hopefully this post helps some of you make some money. I’ve successfully traded off of bad news over twenty times now in the crypto world.
Fear and greed always present opportunities. Experience helps you recognize them. Buying when everyone’s afraid and selling when everyone’s greedy is an art form you develop over time. Staying ahead of the curve is how you thrive in the trading world.
Here’s hoping we all stay ahead!
Will Salisbury is the co-founder of Blockchain Decrypted and full-time cryptocurrency trader. He also hosts the Blockchain Decrypted podcast, and when he's not talking or writing about blockchain technology and cryptos, he likes to play games and relax in his home state of Michigan.
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