What Just Happened to Bitcoin on the Luno Exchange?

Bitcoin took a bit of a dip internationally yesterday, following the launching of a second Bitcoin futures exchange on CME. Bitcoin futures for January were trading lower than the spot price, which put downwards pressure on the asset.

For most Bitcoin believers, this was a surprise. They had expected the futures market to add “legitimacy” to bitcoin and therefore drive up its price. But some commentators had pointed out previously that a downward trend was likely. The logic is that, while bulls have always had a market to buy in, bears weren’t previously able to “bet against” Bitcoin without owning any coin, which is something that many weren’t willing to do. A Bitcoin futures market opens the possibility for bears to short Bitcoin without having to invest in it first.

However, in comparison to international exchanges, Luno experienced what could probably be described as a flash crash. About an hour before the time of writing, the price on Luno shot down from close to R300 000 to below R240 000 in a matter of minutes, before recovering.

The likely reason is the strong movement of the rand on the back of news coming out of the ANC conference. Prices on local exchanges will always tend to gravitate towards the dollar price multiplied by the exchange rate, as long is the gap is wide enough for arbitrage to be possible. If the rand strengthens, it makes sense that the price of Bitcoin will go down in rand value. The two assets are independent.

Why the movement was so exaggerated is anyone’s guess but, if history is anything to go by, it was probably a combination of whale profit taking, and good old panic.

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Neil du Toit is a data strategist at Q Division. In his free time, he writes more interesting articles for his personal blog.