Stocks fell this morning alongside the crypto market, which scorched lower in a “flash crash” rivaling its historic drops of early 2018 and March 2020. Bitcoin sank to a session low of $30,000, falling 30% on the day while Ethereum plummeted to $1,900, down 44% on the day.
Additional pain was felt among nearly every other digital currency as traders rushed for the exits.
This caused a Coinbase outage that left investors “locked-in” to their positions. Many investors were unable to sell. Binance, one of the world’s most popular exchanges, halted Ethereum withdrawals.
And it was all sparked by a misleading Reuters headline, released early this morning.
“China bans financial, payment institutions from cryptocurrency business.”
Scary, isn’t it? At first glance, it would seem that China banned crypto outright.
But the reality is that investors learned nothing new from the article. Instead, China simply reiterated its anti-speculation law that was established years ago. In the past, Chinese banks have not offered clients any service involving crypto.
And according to Chinese regulators this morning, little has changed. They merely doubled down on the original ban while expanding its restrictions to additional crypto-related services, such as:
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Account openings, registration, trading, clearing, settlement, and insurance.
“Recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order,” read a joint statement from three Chinese industry bodies.
There was no mention of a “crypto ban.” By and large, this should not have had a profound impact on crypto prices.
But the headline spread like wildfire on social media. Facebook shares and Twitter retweets sent the market spinning. By the time most Western traders saw it, they scrambled to dump their holdings.
Over the last few hours, however, much of the gloom and doom has faded. Bitcoin rebounded sharply off $30,000 to around $37,000 (+23%) in less than 30 minutes. Ethereum enjoyed a similar bounce, rising from $1,900 to $2,600 (+36%) in just 45 minutes.
Investors are starting to recognize the latest correction as a result of a broad misinterpretation, not a true “market wrecking” turn of events.
That’s why buying the dip today, while typically not a valid enough reason to buy depressed assets all on its own, might make sense for some traders.
The evidence of a short-term rally is mounting for most digital currencies. And remember, the last few “flash crashes” preceded major run-ups for both Bitcoin and Ethereum.
Another one may very well be on the horizon.
“In terms of Bitcoin’s outlook, things may be looking grim right now, but historically this is just yet another hurdle for Bitcoin to overcome and a small one compared to what it has braved in the past,” said Ulrik Lykke, executive director at crypto hedge fund ARK36.
And though it’d be easy to label Lykke’s optimism as biased, due to the fact that he has a leadership position at a crypto hedge fund, it’s perfectly valid in this case. Bitcoin’s faced truly ghastly dips in the past.
But its long-term trend has rewarded investors with incredible returns. Is this the latest “discount period” for bulls to buy more?
It certainly could be so long as another external market force, like a poorly timed Elon Musk tweet, doesn’t derail crypto traders during their next recovery campaign.