December 8, 2024
Why did Bitcoin drop? Analysts point to 5 potential reasons

Elon Musk’s SpaceX Is Reportedly Selling Its Bitcoin (BTC) Holdings bankruptcy Concerns over Chinese real estate giants, as well as fears of rising interest rates, have been among the theories surrounding the unusual drop in Bitcoin’s price.

Around 9:35 PM UTC on August 18th, the price of Bitcoin suddenly plunged by more than 8% within 10 minutes, and the entire cryptocurrency market also plummeted, leaving many in the crypto community scratching their heads.

While there appears to be no consensus on the reasons for the sudden market drop, several cryptocurrency market analysts have shared their preliminary theories with Cointelegraph.

SpaceX Dumps Bitcoin, Sparking Interest Rate Concerns

EToro market analyst Josh Gilbert blamed the drop on an Aug. 17 Wall Street Journal article stating that SpaceX may have sold some or all of its $373 million bitcoin holdings.

“Whenever you have a big name in the bitcoin selling industry, especially someone as influential as Elon Musk, it puts pressure on the price of bitcoin.”

That would send prices down suddenly within about 2.5 hours of the report being published online.

Another theory could be the rapid shift in sentiment due to the influence of the broader market, Gilbert said. expect The likelihood of future rate hikes by the Federal Reserve.

Gilbert explained: “If we also take into account some of the weakness we’ve seen in global markets over the past few weeks – particularly in risk assets – and anticipate that interest rates are likely to remain elevated for longer, then this is A recipe for callbacks.”

He added: “Bitcoin has struggled to move higher in the last month, trading between $29,000 and $30,000, with little ‘good news’ driving the asset higher, which only exacerbated the sell-off.”

government bond yield

Tina Teng, a market analyst at CMC Markets, took a different view, citing the recent rise in Treasury yields as the fundamental reason behind the sell-off.

Teng explained that rising bond yields usually indicate less liquidity in the broader market.

“That’s probably the main reason for the decline in cryptocurrencies,” she said.

Additionally, Teng said that while the Evergrande crisis may have an indirect impact on bitcoin prices, she does not believe it is one of the root causes of bitcoin’s price decline. “It has a bigger impact on the Chinese economy and investor sentiment,” she explained.

Chinese yuan still poses a risk to Bitcoin

However, while Teng believes the Evergrande crisis is the main reason for bitcoin’s price volatility, Matrixport research director Markus Thielen claims that the risk of a devaluation of the yuan may have played a major role in the sell-off.

“The biggest macro risk is the potential depreciation of the yuan, which is trading at its lowest level since 2007.”

“In August 2015, when China devalued the yuan for the last time, the bitcoin price fell -23% in the two weeks after the devaluation. Before a more meaningful rally began, bitcoin was up 59% from the depreciated level for the year. % ,” explains Thielen.

whale sells big

While there are many other news events that could be responsible, anonymous derivatives trader TheFlowHorse told Cointelegraph that the sudden drop in prices could have been caused by aggressive selling by a large player, causing further pressure on derivatives.

“It’s not just a natural waterfall. Some big guy drops it for a goal and starts it. The spot volume is barely comparable to the normal volume.”

More than $427 million in long Bitcoin positions were liquidated in the four hours to publication time, according to data from cryptocurrency analytics platform Coinglass. Over the past 24 hours, more than $822 million has been liquidated by traders holding long positions — bets that the price of the crypto asset will rise.

Over the past 24 hours, over $427 million worth of long Bitcoin positions have been liquidated. Source: Coinglass

Describing much of the explanation for the drop as “pure speculation,” Horse said that since the SEC’s report suggesting its approval of an ethereum futures ETF came shortly after the selloff, large funds may have dumped their bitcoin positions to ” Trigger a cascading purchase of ETH.”

related: Bitcoin Price Briefly Drops Below $26,000, Drops to Two-Month Low

Bitcoin has recovered slightly since the crash, gaining 1.2% in two hours, according to TradingView. As of the publication of this article, Bitcoin is changing hands at $26,619.

Its price appeared to be buoyed by news that the U.S. Securities and Exchange Commission could approve an ethereum futures ETF product as soon as October.

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