8btc Online Summit | Should We Hold On after the Bitcoin Crash
Bitcoin has suffered a historic week of catastrophic drop this past week. Crypto investors are stunned when the price of the primary cryptocurrency almost halved to $$3,800 in just two days beginning on March 12.
Though the price has bounced later the week, it continues hovering around the $4,800-$5,500 range. Seeing bitcoin price lose momentum, investors are panicking, to pile out of it in the correction, or, to hold on? Where bitcoin’s heading?
On March 16, we had the chance to speak to Xiong Yue (COO of Bitcoin wallet platform Bixin) and Dovey Wan (founding partner of Primitive Ventures) about how they respond to the crash and their thoughts on the industry.
The following are some excerpts of the online dialogue which acts as a prelude to our online summit 2020.
Q: Seeing bitcoin’s brutal crash on March 12 and March 13, what’s your response?
Xiong Yue: When I opened the wallet on my mobile phone that day, I found my assets deflated a lot. Then I checked the market updates, it turned out that the price of bitcoin hit a brutal decline, and I was completely confused. But it’s okay with me since I don’t trade high leverage.
Dovey: I’m not that sensitive to price and keep almost all of my cryptos on hand. I’ve been saying since the first half of last year that bitcoin is not a traditional safe-haven asset. In the macro sense of the so-called black swan hedging, considering bitcoin’s market volume, we should not expect it too much.
I was sleeping the day when the crash occurred, as I had to get over the jet lag after I arrived in Singapore. When I read the market news, I thought there was something wrong with Coinbase. After checking the prices on CoinMarketCap, I realized bitcoin crashed below $4,000. The move reminds me of the crash of November 2018, which dragged bitcoin down to a low of $3,000 from $6,000.
Q: Will the plunge be written down into bitcoin’s history? What’s the difference this time compared to much bitcoin’s history?
Xiong Yue: Absolutely. There has been only one big crash in the history of bitcoin’s existence that I have not experienced, the one in 2011. In 2013, bitcoin crashed after it was reported by CCTV, another crash followed when five ministries in China said that bitcoin was not a currency. 2015 saw another plunge in the long bear market; when China banned ICOs and started crypto crackdown in 2017, bitcoin price collapsed.
The market environment is not the same, each slump was driven by different factors. As many crypto investors use high leverage on bitcoin trading, when the price of bitcoin suddenly drops, it leaves leveraged positions at risk of being liquidated and they have to sell it to cut losses, which contributed to crashing bitcoin this time.
Dovey: In 2014, the crash was like the proverbial slow-boiling frog in warm water mentally. It was very tough to see bitcoin price fall from 8,000 yuan to 900 yuan. After that, the entire crypto industry, from mining to exchanges, went into the chilly winter. It seemed there was no hope for anyone.
The crash this time is different from the previous two slumps, mainly in the structure of trading markets.
In 2016 when bitcoin reward was halved, the whole trading market was dominated by spot trading, and now futures or contract trading dominates. Therefore, once the long-short ratio changes, it may lead to a free fall in bitcoin price. In addition, it is a relatively free market, there’s no circuit breaker system, there’s no central banks to save the market.
Q: What the crypto ecology could learn from this crash?
Xiong Yue: I think we need to think more about the robustness and the extreme cases of a product. For example, at the beginning of the decline, I talked with Pan Chao of MakerDAO, questioning whether further decline would affect MakerDAO loans. Pan was confident at that time, saying that they can bear a further 80% drop. But later we found they were auctioning some DAI to cover the loss these days. So when you’re designing a product, consider these extremes.
Dovey: On the day of the sharp drop, I posted a tweet about DeFi instead of bitcoin. At present, the application of DeFi is limited to leverage and collateral loans, its liquidity is not good and smart contract is 100% executed, it may have systemic problems, resulting in the entire protocol to zero. DeFi is a good product test, but its actual operation needs to be tested.
Q: What do you think of the safe-haven narrative of bitcoin?
Xiong Yue: Safe-haven assets refer to a class of relatively stable assets whose price will not fluctuate too much as the market changes, such as gold, dollar and so on. The concept is not that scientific in itself, it’s just that we tend to think that there’re some asset we assume it doesn’t go down that much.
There is now a global panic, similar to that of 2008. In face of the current panic level, no asset can withstand. The global economy is facing a big problem, and everyone is wondering how to save his or her assets. Bitcoin has fallen quite badly recently, people begin to wondering whether bitcoin is a good asset or not, if you take a longer time, you will find that both bitcoin and gold rise in prices compared to that of one year ago, while U.S. stocks and real estate prices are lower.
To this extent, bitcoin is not a safe haven, but a risky experiment. A decade ago, its creator Satoshi Nakamoto said it was a social experiment, and now it still is. Bitcoin is a pseudo-safe haven. In some small crises, bitcoin shows the property of a safe-haven asset, but in face of big real crises, it’s meant to be a great social experiment.
Dovey: Bitcoin’s safe-haven property is not to avoid risks in price, as in a big liquidity market, no asset with good liquidity is immune to risks. I think for the Chinese crypto community, we should think clearly whether we want to earn more yuan or to hedge your asset. If you are a speculator and want to make money quickly from bitcoin, it does not matter if bitcoin is a safe-haven asset. Bitcoin, for me, is an insurance of the parallel world.
Q: Does crypto need circuit breakers?
Xiong Yue: It is difficult to introduce circuit breakers to the crypto market, as cryptocurrencies are traded everywhere all over the world. Some big exchanges can have the system in their own contract products. If they utilize circuit-breakers, it will be cumbersome to implement and will sacrifice short sellers.
Dovey: I think circuit breakers make sense in a centralized market. The massive panic and FOMO will result in price up or down in short time. In the current traditional financial market, circuit breaker mechanism can be a guarantee for market liquidity. It is very difficult for exchanges to adopt such a system, but it helps to stabilize market sentiment.
Q: What changes will occur to the crypto industry in the future?
Dovey: The decline this time is affected by the entire economic environment, the deleverage in the crypto sphere will lead to a number of people to leave. In a broader shuffle, there will be fewer reinvested assets in the industry, and highly leveraged players will get out of it. The amount of bitcoins in the market will not change, but just be redistributed.
I’m not positive about the application of “blockchain +”, as I believe cryptocurrency itself is the primary application of blockchain. Every cycle has its similarities and differences, and those long-term believers will hold on in the business. After this black swan event, I’m personally very bullish on the crypto market.
I have a lot of long-term investor friends who have went through the World War II or real fiat currency collapse, and they have a lot more faith in cryptocurrencies, because for these hardcore players, cryptocurrencies are a new asset that transcends monetary sovereignty, and, they are more and more determined.
In terms of prices, my personal observation is that bull and bear will shift faster. In addition, in the long run, as the liquidity becomes better and better and the market structure becomes more and more improved, its volatility will theoretically become lower.
Xiong Yue: Bitcoin is undoubtedly a very promising asset. It depends on your own actual situation whether to buy the dip.