Bitcoin And Ethereum Crash… For A Few Minutes – Seeking Alpha

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Many investors are wondering why Bitcoin (Pending:COIN) and Ethereum are down after such a string of good news. Bitcoin's scaling issues look like they will be resolved amicably through Segwit2x, and this was expected to be a significant boost to the entire cryptocurrency space.

However, things did not go as expected. While Bitcoin's consensus-driven rally did materialize - taking the asset to almost $2800 - Bitcoin's rise came with a brief decoupling with Ethereum. The two assets are normally hugely correlated. But at around 4:30-6:20 pm EST on the 20th of June, they briefly moved in opposite directions.

Ethereum, along with Bitcoin, then proceeded into a sharp downward correction. The Ethereum market, in particular, seems to have fallen victim to a flash crash that took it almost to the single digits before shooting back to around $330. This article will analyze what occurred on the 21st to figure out how this development affects the long-term investment thesis for both digital assets.

The Problem

Ethereum's problems started with the Status ICO. I briefly mentioned how this event was a fundamentally bullish catalyst for Ethereum. This expectation was predicated on the fact that investors are required to buy Ethereum to invest in status - thus driving up demand for Ethereum.

As expected, the Status ICO was hugely popular. In fact, it was so popular that it seems to have congested the system leading to extremely long transaction wait times and exposing what many believe are potential scaling issues in the Ethereum network.

The problems with the Status ICO seem to have started a chain reaction of negative market sentiment that affected the entire "cryptoverse," including Bitcoin. High transaction volume for the Status ICO as well as what looks like panic selling briefly crashed the popular Coinbase exchange.

To make matters worse, there was a "flash crash" - the price of Ethereum briefly dipped to unimaginable lows, liquidating margin positions and filling buy orders for as low as $13 according to anecdotal reports.

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No one is sure what caused this flash crash - but it appears to be limited to the Coinbase/GDAX exchanges and there has been little impact on trading in other regions - especially Asia where the prices for both Bitcoin and Ethereum continue to trade for a significant premium over the west.

The most interesting thing about this event is that many investors are claiming that "unrealistically low" buy orders - for prices often around 90% less than the real price - were filled during this event. Needless to say, many people made a lot of money.

Looking to the future

The Civic ICO is currently underway, and investors who are interested in participating will need to do so through Ethereum, thus providing further support for prices going forward.

On top of this, as the dust from the Status ICO settles, transaction volume should calm down on the exchanges and bolster the usability of the network. The flash crash was an anomaly and should not be seen as an indictment against Ethereum. Instead, investors should avoid unstable exchanges and strongly avoid trading digital assets on margin until the online infrastructure is more sophisticated.

I expect the Asian market to boost Ethereum prices over the next twelve hours because this region is probably not as affected by the events on U.S exchanges.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Bitcoin And Ethereum Crash... For A Few Minutes - Seeking Alpha