Crypto bulls, undaunted by the Bitcoin flash crash, say that now is the 'greatest time' to invest.
The "flash crash" that dragged bitcoin (BTC-USD) back below $50,000 this week — and sent other digital coins falling in its wake — spoiled what should have been a historic moment for the world's first sovereign entity to embrace cryptocurrency as legal tender.
Even as some observers question bitcoin's head-spinning volatility and El Salvador's willingness to throw its weight behind it, most crypto's diehard believers remain just that – despite the ugly price action.
Other countries are expected to join El Salvador in the race to make cryptocurrencies legal tender, according to Michael Sonnenshein, CEO of Grayscale Investments, the world's largest cryptocurrency fund manager by assets, who told Yahoo Finance Live this week.
“I believe this is the best time to enter the crypto market,” said Matt Hougan, CIO of Bitwise. For much of the first decade of cryptography, it was all about zero to one. The challenge now is how quickly we can scale from one to 100. A lot of it hinges on the regulatory certainty we achieve.”
To be fair, digital currencies like bitcoin — which traded above $52,000 on Monday but stayed at $45,000 on Friday — as well as ethereum (ETH-USD) and Cardano (ADA-USD) have had a bumpy week (ADA-USD). However, from peak to trough, the latter two didn't lose nearly as much as bitcoin, which, according to one investor, had offshore outflows of up to $3 billion during Tuesday's selloff.
The price of cryptocurrency (SOL1-USD), which powers the Solana blockchain, on the other hand, had already surpassed its pre-flash crash highs, trading at $175 on Friday.
Anatomy of a 'telltale' cryptocurrency crash
Despite last week's collapse, Jeff Sekinger, a financial genius and head of the Miami-based crypto hedge fund Orca Capital, stated in an interview with Yahoo Finance that he expects the broader crypto market would likely see a lot of growth through the end of the year.
This week began with another important market event, El Salvador's new Bitcoin Law, which was supposed to be a benefit to the industry, similar to the week of Coinbase's initial public offering.
Sekinger has seen his fair share of crypto market ups and downs. He first bought bitcoin in college in 2013, and the 2017 bull market persuaded him to quit his job at JPMorgan Chase to devote his whole attention to the asset class. Two years later, in April, he launched Orca Capital.
In a YouTube video he posted on August 31, Sekinger predicted this week's flash meltdown by breaking down trading volume, open interest levels, and on-chain analyses. It all boiled down to volume and three big increasing patterns, he explained.
“It's been a telling sign for the past three major crashes when perpetual funding, opening interest, and price action are all heading higher but volume is slowing,” Sekinger told Yahoo Finance.
The collapse this time was caused by a combination of excessive leverage in the markets, as well as cryptocurrency traders “buying the rumour and selling the news,” he explained. According to Sekinger, this was proof enough that the market is still limited — and still severely influenced by a few huge players.
Sekinger predicted that the present bull market in crypto will expire in the first or second quarter of next year, despite the fact that market cycles are notoriously difficult to predict.
“There will be too much enthusiasm and leverage, and it will all come crumbling down. Because we are starting to see substantial money in the area, I believe there will be a smaller percentage correction,” Sekinger said.
Orca currently runs $50 million in assets over two funds, each with 167 limited partners. Both funds have outperformed bitcoin since its inception, with one having more than twice bitcoin's return in the past year.
Orca will rollout two more funds in the next two months, one of which will be a more aggressive DeFi-focused fund. According to Sekinger, the company's overall asset value under management should double as a result of the additions.
Retail investors "see all these crazy stories about the ridiculous amount of money being made on NFTs and that sparks their interest.”
- Jeff Sekinger, crypto portfolio manager
In terms of leverage, Sekinger claimed that his funds can leverage up to 5% of their worth, but that they have never wanted to go that high, and that they only utilise it "two to three times each year in little quantities."
Retail demand for nonfungible token (NFT)-related investing is driving Orca's future offers, according to Sekinger - something he linked to Solana's remarkable growth this summer.
“One of the reasons SOL is exploding is that a lot of NFTs are migrating from Ethereum to Solana since it's so much cheaper to start, buy, and sell on the Solana blockchain,” Sekinger explained.
Retail investors are "sparked by all these insane stories about the incredible amount of money being earned on NFTs," he said.
Investor interest in blockchains with faster transaction speeds has quickly dominated price behaviour in light of the stream of investment brought into the crypto market by NFTs.
The Ethereum blockchain is expected to perform 15 transactions per second after its London hardfork update, but tales of hefty fees owing to network congestion have traders worried.
Cardano is reported to be capable of 257 transactions per second and perhaps much more with improvements, whereas Solana is capable of 50,000 transactions per second, according to tests.
