Concerns surrounding the coronavirus, which has been declared a pandemic by The World Health Organization, helped drive bitcoin lower last month, in spite of various bullish factors that helped provide tailwinds earlier in February.

The digital currency rose nearly 13% during the first few weeks, climbing from $9,388.88 at the start of the month to $10,598.03 on February 14th, CoinDesk figures show.

Analysts cited multiple factors as causing these gains, including anticipation surrounding the upcoming halving, as well as Lightning Labs raising $10 million in order to grow its payment network.

Some market observers also pointed to technical analysis, with Charles Hayter, cofounder and CEO of digital currency data platform CryptoCompare, emphasizing that bitcoin had surpassed its 200-day moving average, something he described as “usually a very positive signal.”

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Coronavirus Impact

Following this strong start, bitcoin gave up all these gains and finished the month in the red, as global markets responded to worries surrounding the coronavirus.

The digital currency fell to as little as $8,459.70 on February 28th, having declined more than 20% from its intra-month high, and finished the month at $8,639.59, additional CoinDesk data reveals.

While the digital asset had been “performing well this year,” a growing number of coronavirus cases helped push it into the red, said Joe DiPasquale, CEO of cryptocurrency hedge fund manager BitBull Capital.

Denis Vinokourov, head of research for London-based digital asset firm Bequant, also spoke to the market’s reaction, noting how global equity markets also suffered a “dramatic correction” because of these concerns.

Liquidity Crunch

Vinokourov shed further light on the cryptocurrency’s losses in February, emphasizing that a lack of liquidity also contributed to these declines.

“Bitcoin can behave as a safe haven, portfolio diversification asset, but when there is a global liquidity crunch, cash is king and even safe haven assets fall in price as market participants are forced to cover positions to meet the liquidity constraints,” he stated.

Other analysts also weighed in on this matter, with Michael Poutre, managing partner of blockchain-focused hedge fund Terraform Capital, noting that while “bitcoin is easily the most liquid digital currency,” it is nowhere near as liquid as gold, to which it has frequently been compared.

The market for bitcoin is still very small compared to the markets for some assets, he noted, which helps contribute to the digital currency’s sharp price fluctuations.

Bitcoin Volatility

During February, bitcoin’s 30-day volatility dropped to its lowest in more than five months, according to figures provided by David Martin, an independent cryptocurrency analyst and former chief investment officer of Blockforce Capital.

This measure of bitcoin’s price fluctuations fell to 39.3% on February 14th, its lowest since September 23rd, said Martin. This compared to its value of 51% on February 1st.

In the second half of the month, volatility pushed higher, finishing February at 48%.

“Bitcoin’s volatility has generally been range bound between 40%-60% since August of last year, significantly lower than its long term average of 70%,” said Martin.

The chart below helps illustrate these developments:

Market Sentiment

The sentiment of bitcoin traders, as measured by 30-day average tweet volume, peaked in mid-February and then declined, according to Joshua Frank, cofounder of digital analytics platform

“We saw a pretty steady increase in the number of tweets on Bitcoin from January through to the middle of February this year alongside price appreciation,” he stated.

“From mid-February until the end of the month, tweet volume fell slightly but remained significantly above January lows,” said Frank.

The chart below helps illustrate this situation:

Frank emphasized that many digital currencies have followed a similar pattern, as their price movements correlated with sentiment.

The chart below shows how ether and XRP have conformed to this trend:

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.

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