South African-based crypto-currency exchanges are witnessing increased transactions after the fall of the Bitcoin price.
As the volatility of crypto markets continues, the value of Bitcoin − the world’s most popular digital currency − recently dropped to below $31 000 (R479 000), which is less than half of what it was at its all-time high in November last year.
With the drop in the price of Bitcoin, the local exchanges point out that first-time buyers are seeing this as an opportunity to dip their toes into the world of crypto.
They add that the decline in the price has seen some panicked investors rushing to sell-off their crypto assets.
“Usually sharp increases and drops in crypto prices lead to an increase in transactions, which we are seeing on Luno,” Marius Reitz, Luno’s general manager for Africa, tells ITWeb via e-mail.
“On average, we see an 8% increase in new clients and a 10% increase in clients who are buying crypto for the first time – these may be people who opened wallets (accounts) and waited for the price to drop. We see that many customers are watching the price, as they are setting up price alerts on Luno.”
According to Reitz, since the first week in May, just before the big price drop, Luno has seen an 18% rise in active clients, as some sell crypto and others buy the dip.
He notes the volume of transactions on Luno increased by 120% during the first and second week, when price volatility was at its peak.
“To put this in perspective, in March 2020, when the market dropped on news of the COVID pandemic, there was a 60% increase in volumes on Luno.
“Bitcoin has seen the most trade, with growth of 150%, followed by Ethereum and Ripple. Both Ethereum and Ripple have grown 100%. Volumes doubled from $10 million to $20 million on each of these.”
Research before leaping
Similarly, David Porter of AltCoinTrader says the crypto exchange has seen a large increase in trading volumes associated with the price action.
“In essence, this means that while there are ‘panic sellers’, there are certainly many ‘bargain hunters’ on the lookout for a good price entry point, or for those looking to decrease the average cost of their portfolios,” Porter says.
He stresses that as an exchange, AltCoinTrader does not give investment advice and each investor must do their own research and have a deep understanding of their own risk appetite and tolerance levels.
Nonetheless, he points out that while historic price action is no indication of future price action, some of the best buying opportunities for Bitcoin have traditionally been when prices approach the 200-week moving average.
Says Jonathan Ovadia, CEO of Ovex: “Investors should be looking to buy Bitcoin at these prices, although if this bear market persists, prices could be lower in the next 12-18 months. Long-term, investors could see some great returns by buying at these low prices.”
He believes that in the short-term, prices are unlikely to recover, but there is a good chance of prices recovering in the medium- to long-term.
“In risky times like these, it is best to hold larger cap coins, such as Bitcoin and Ethereum, as these have stood the test of time.”
Farzam Ehsani, CEO and co-founder of VALR, acknowledges that Bitcoin and crypto, like all other asset classes, lost ground against the dollar in the last few weeks and months.
“We’re looking at a macro backdrop of uncertainty regarding the state of the economy, as well as monetary policy from the Federal Reserve and other central banks around the world.
“Inflation has reared its head and the prospect of containing that inflation through tightening monetary policy means less liquidity will be in the financial system and interest rates are expected to rise.”
When this happens, Ehsani says the dollar strengthens. “Despite Bitcoin’s retracement of over 50% since its all-time-high, many still view Bitcoin and some other crypto-currencies and inflation hedges at the current price as a potential entry level.
“Of course, crypto will continue to be volatile, and prices may drop further, so individuals and institutions need to evaluate their risk appetite for this volatile asset class.”
Where to next?
Luno’s Reitz explains that Bitcoin gained 9% over the last week, breaking above the critical resistance level of $31 500.
He notes it has yet to be seen whether this is sustained, as bear markets usually have many such bounces before moving back down. It outperformed most of the crypto markets in May, and its dominance has grown from 42.5% at the start, to 46.7% currently, indicating altcoins in general are underperforming Bitcoin, he adds.
“US equities also rallied towards the end of last week, with Bitcoin following, hence traders are probably closely watching equities to determine crypto's next direction as well.”
He adds that Bitcoin has slumped significantly over the past few weeks, in tandem with the slide across financial markets.
“On 9 May, global stocks suffered their worst one-day decline since the coronavirus pandemic first emerged in 2020. The initial slump didn’t appear to have been due to any specific catalyst, but analysts were pointing to a growing pessimism about the state of the world’s large economies.”
For Porter, there are two primary driving factors behind the recent price action in Bitcoin; the first being the moves made by the US Federal Reserve to increase interest rates in the face of high inflation and market instability.
He says the second driver was the virtual implosion of a stablecoin called TerraUSD. “A stablecoin, as its name suggests, is meant to have a stable value because the tokens are pegged to the value of a currency such as the US dollar.
“In the case of TerraUSD, its peg to the US dollar was backed algorithmically through a network of arbitrageurs, who buy and sell Terra’s volatile crypto-currency governance token LUNA. TerraUSD de-pegged from the US dollar, which led to large LUNA holders burning their tokens in an attempt to retain the peg to the US dollar.
“As a result, LUNA lost 99% of its value. This extreme market volatility, which affected a well-known stablecoin, severely affected market confidence and even the confidence in other, unrelated stablecoins,” Porter concludes.
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