Bitcoin's ghost of Christmas past

In the timeless novel "A Christmas Carol" by renowned English author Charles Dickens, Ebenezer Scrooge, the cold, greedy and overall unpleasant character, is visited by three spirits before Christmas. The first to haunt Scrooge is the Ghost of Christmas Past, which attempts to show the wealthy but shrill businessman that he needs to change his ways lest more misery is visited upon him.

The tale bares foreboding pertinence for the Bitcoin – the wealthy but self-observed prodigy of the financial market. Just like Scrooge is being reminded of his wrongdoings around previous Christmases, so Bitcoin's nearly 15 per cent plunge at one point today is a stark reminder of the 2017 crash. Unless the market changes its opinions of the Bitcoin drastically, the cryptocurrency is bound to collapse once again.

The flagship of the crypto-world opened today's trading session at nearly 18800, but several hours later it was probing below 16500. The rationale behind the dip is quite straightforward – traders and investors, who have been watching their Bitcoin profits grow steadily throughout 2020, decided to cash in en masse today in order to take advantage of the Black Friday discounts.

Similar developments were observed in 2017 at the height of the crypto craze when the Bitcoin was nearing the 20000 mark right before Christmas. This psychologically satisfying number compelled many investors to cash in on their accumulated profits, and have a very merry Christmas. The subsequent selloff resulted in the Bitcoin plunging to nearly 3000 dollars. So, an essential question arises – is today's fall a prelude to a bigger crash that is yet to come, or is the crypto Scrooge ready to reconcile its previous missteps?

On the one hand, things are different now compared to 2017 in terms of Bitcoin's integration within the global financial system. In addition to a much tighter regulatory oversight, a lot more exchanges, hedge funds, ETFs and other types of funds are involved with the Bitcoin. This makes the king crypto seem a lot more diversified, giving it a more solid footing compared to 2017's hype-bubble.

On the other hand, the Bitcoin continues to be for many smaller-sized investors the dreamed trampoline to wealth and fortune. They imagine seeing the Bitcoin climb to 20 thousand, 50 thousand, and eventually 100 thousand, but at the same time are petrified of massive daily tumbles such as the one today. Such traders and investors are driven by mass-market psychology. They react to market developments on the 'if there is smoke, there must be fire' principle. Namely, they are more likely to want to flee the market if they perceive adverse volatility as a major obstruction for their investments. In other words, such market participants are much more likely to want to cash in on their investments as opposed to big hedge funds, if they think that the bubble is possibly going to burst once again.

Overall, the biggest appeal of the Bitcoin, which is also unsurprisingly its most significant hindrance, is its outlook as the Holy Grail of get-rich-quick schemes. This year's Festive period, which is typically characterised by low-levels of liquidity, is going to put the Bitcoin to the test, and we are going to see whether the ghost of 2017's Christmas past will come to haunt crypto investors once again.