Yesterday, bitcoin became the legal tender of El Salvador alongside the US dollar. And on the very first day, the country's residents experienced how significant fluctuations in cryptocurrency prices could be.
Bitcoin lost nearly 20 percent yesterday, falling from about $52,000 to about $43,000. It all happened very quickly. A similar decline was seen in May this year, but this time there was no significant news that could have directly projected a change in the cryptocurrency's valuation. Also, no large influx of coins was observed on exchanges, which would then be sold.
Bitcoin falls, El Salvador buys
Attention therefore turned to the highly leveraged derivatives market, where buyers, presumably, began to panic and close their trades. Or they could have been closed automatically, because there was not enough coverage to hold them and the price collapsed with a snowball effect.
The key level could have been exceeding $50,000 downwards, which could have activated above-average supply, and in total positions worth about $3 billion evaporated from the cryptocurrency market. After the discount occurred, the president of El Salvador stated that his country bought another 150 BTC at an attractive price and in total already owns 550 BTC.
Investors in Europe are waiting for the ECB decision
In traditional markets, after yesterday's one-day rapid jump in the yield on the 10-year US bond from 1.38 percent, it fell to 1.36 percent today as investors remain concerned about slowing economic growth due to the spread of the coronavirus. At the same time, Friday's disappointing U.S. labor market report reduced the scale of expectations that the Federal Reserve will soon begin tapering its bond-buying program.
In Europe, on the other hand, indices seemed to fall on Wednesday, extending the correction initiated on Tuesday. The declines may be linked to lingering concerns about the impact of the delta variant of the coronavirus on global economic growth. Investors also remain cautious ahead of Thursday's European Central Bank meeting, where officials will debate the pace of bond-buying under the PEPP program.
The level of said buying could fall to 60 billion euros a month from the current 80 billion, followed by a further drop early next year and an end to the program in March 2022. The German Dax index is losing about 0.9 percent at midday and is at 15700 points, while the Euro Stoxx 50 seems to be retreating under 4200 points, down about 0.8 percent.
Daniel Kostecki, chief analyst at Conotoxia Ltd. (Forex service of Cinkciarz.pl)
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