On Aug. 18, 2023, at approximately 9:35 p.m. UTC, the value of Bitcoin experienced an abrupt drop of more than 8% within a mere 10-minute timeframe. This unexpected plunge had a domino effect on the broader cryptocurrency market, leaving those within the crypto community puzzled and perplexed.
While the precise catalyst behind this sudden market turbulence remains elusive, a variety of theories have been put forth by crypto market analysts in their discussions with Cointelegraph.
The influence of SpaceX
Josh Gilbert, a market analyst from eToro, attributed the downturn to a report indicating that SpaceX might have sold off a substantial portion, or possibly all, of its $373 million worth of Bitcoin holdings. This information stemmed from an article published by the Wall Street Journal on Aug. 17, 2023.
“Whenever a prominent industry player like Elon Musk is seen divesting from Bitcoin, it inevitably exerts downward pressure on its price,” the article noted.
This explanation aligns the sharp price decline with approximately two and a half hours following the publication of the aforementioned report.
Apprehensions regarding interest rates
Gilbert also introduced another perspective centered around the swift change in market sentiment attributed to the prevailing expectations of future interest rate hikes by the Fed.
“In light of the recent weaknesses across global markets, particularly in high-risk assets, coupled with the anticipation of sustained higher interest rates, the conditions were ripe for a corrective retreat,” explained Gilbert. “Bitcoin has grappled with limited upward momentum over the last month, confined within a tight price range of $29k to $30k, and the absence of favorable news only exacerbated the sell-off.”
Influences of government bond yields
CMC Markets market analyst Tina Teng provided an alternative perspective, citing the recent rise in government bond yields as the underlying factor contributing to the sell-off. Teng posited that an increase in bond yields typically indicates reduced liquidity within the broader market.
Furthermore, Teng dismissed the notion that the Evergrande crisis was a major catalyst for the Bitcoin price drop, asserting that its influence was mainly on investor sentiment towards the Chinese economy.
Persistent risk from the Chinese yuan
While Teng downplayed the impact of the Evergrande crisis, Markus Thielen, head of research at Matrixport, emphasized the potential influence of a devaluation of the Chinese yuan in prompting the sell-off. “The most significant macro risk involves the potential devaluation of the Chinese Yuan, which is presently trading at its weakest level since 2007,” he said.
Thielen recounted the historical context of the Chinese yuan’s devaluation in August 2015, during which Bitcoin prices experienced a 23% decline over the subsequent two weeks, followed by a notable rally later in the year.
Role of substantial sell-offs by major players
Among the myriad potential causes, TheFlowHorse, a pseudonymous derivatives trader, posited that the sudden downward movement could have been triggered by a significant sell-off by a single prominent actor, subsequently amplifying the pressure on derivatives.
“This wasn’t just a spontaneous cascade,” the trader noted. “A substantial player initiated a purposeful sell-off that set the events into motion. The spot trading volume was minuscule compared to the perpetual contracts.”
Data from Coinglass revealed the liquidation of over $427 million worth of Bitcoin in a four-hour period. Over the past 24 hours, long-position traders had witnessed liquidations exceeding $822 million; these positions speculated on the upward movement of cryptocurrency prices.
Categorizing many of the explanations offered as “speculative conjecture,” TheFlowHorse proposed an intriguing possibility: that an Ethereum Futures ETF’s potential approval by the SEC, announced shortly after the market drop, might have prompted a sizeable fund to offload their Bitcoin holdings, triggering a cascade of Ethereum purchases.
In the aftermath of the crash, Bitcoin exhibited a slight recovery, gaining 1.2% over a two-hour span, according to TradingView data. The positive price movement appears to have been influenced by reports indicating that the SEC might endorse an Ethereum Futures ETF product as early as October.
Regardless of the actual reason for that sudden price slump, one can be sure that crypto industry actors such as Bit Digital Inc. (NASDAQ: BTBT) now have their radars up to sniff out such future price movements in order to protect their holdings.
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