In the routine wake-up ritual of a Dubai-based cryptocurrency trader, Reetika, an unexpected plunge in the crypto market sent shockwaves across the globe. The usually stagnant weeks had been rudely disturbed by a severe cryptocurrency devaluation that saw a drop of 6.7% in overall capitalization. A considerable loss, marking one of the recent months’ most substantial decreases. In a 24 hour window, Bitcoin dipped by 9% to $25,000 on Binance, from a promising $28,500. In the domino effect that ensued, cryptocurrencies like litecoin also suffered a staggering 14% downfall, causing futures worth more than $1 billion to be liquidated, reaching a 14-month high.
The apparent reasons for this drastic change in fortunes varied widely, with some pointing fingers at unforeseen SpaceX‘s bitcoin sales claims, while others blamed China Evergreen’s bankruptcy. Still, in all likelihood, these events were merely specters, with no real impact on prices. With a healthy dose of skepticism, we explore these claims further.
SpaceX reduced it’s bitcoin holdings in value in what is known among accountants as writing down an asset. This procedure is typically accomplished when a property’s fair market value dips below its book value, common among businesses for tax reduction purposes. SpaceX neither confirmed nor denied any sales of its bitcoin holdings, leaving us questioning the amount of their cryptocurrency investment and influence.
Observers at the vanguard of the crypto market, professional traders, propose market structure and liquidations as probable reasons for the sudden slump, instead of a solitary significant catalyst. An especially flat and illiquid market created a conducive environment for abrupt price movements. The quick accumulation of future positions in a flat market often triggers rapid falls when an influential player initiates considerable sell-off. Heavy selling pressure amid falling prices leads to a seemingly endless loop of falling prices and extensive long position covering.
Factors such as rising interest rates in the U.S. add fuel to the crypto fire. The 10-year yield is at a 15-year peak, posing a risk to assets in general. If this selling streak in bonds persists, we could witness a continuation of adverse price fluctuations in risk assets moving into the weekend.
Traders around the globe anxiously await Friday’s Grayscale ruling about the issuance of an exchange-traded fund (ETF), expecting substantial market shifts. The verdict, in favor of Grayscale, may stimulate market-wide surges, while adverse outcomes could induce further market jolts.
In conclusion, from market structure considerations to court rulings, several elements generate moments of major fluctuation in the crypto market. Future events, some predictable, others not as much, will undoubtedly determine newer courses for this volatile trading platform.
Source: Coindesk
