Bitcoin and Altcoin
Bitcoin has dropped to a local low of $40,750 from around $45,000 yesterday evening, coinciding with a report published by Singapore-based digital asset company Matrixport written by Markus Thielen, predicting that the U.S. Securities and Exchange Commission (SEC) will reject all Bitcoin spot ETF applications.
However, Jihan Wu, co-founder of Matrixport, stated that the report is unlikely to have caused the crash and pointed out the weakness in cryptocurrency-related stocks in recent days, potentially signaling a downturn in digital assets.
In contrast, analysts have dismissed Matrixport’s argument, stating that there is no evidence to suggest regulatory agencies will reject the applications and have provided odds favoring approval at a higher rate.
Subsequently, the price of Bitcoin recovered to around $42,800 and has stabilized around this level as of now, but still lost over 5% in value over the past 24 hours.
The Altcoin market was on fire yesterday, with many large-cap projects experiencing double-digit declines.
Projects like Conflux (CFX), Theta Network (THETA), Terra Classic (LUNC), SATS (1000SATS), Bonk (BONK), MultiversX (EGLD), Gala (GALA), Filecoin (FIL), Bitcoin SV (BSV), The Sandbox (SAND), Fantom (FTM), IOTA (IOTA), Polygon (MATIC), Decentraland (MANA), WOO Network (WOO), Flow (FLOW), FTX Token (FTT), Arweave (AR), EOS (EOS), Kava (KAVA), Kaspa (KAS), Aptos (APT), Neo (NEO), Axie Infinity (AXS), Pancakeswap (CAKE), Synthetix (SNX), Uniswap (UNI), ORDI (ORDI), Litecoin (LTC), Hedera (HBAR), Dogecoin (DOGE), The Graph (GRT)… collectively lost over 10% of their value in just 24 hours.
Ethereum (ETH) also plummeted from $2,385 to near $2,100 before recovering to around $2,205 at the moment, marking a nearly 7% short-term loss.
What caused Bitcoin’s 10% crash?
An analyst from K33 stated in an interview that Bitcoin dropped nearly 10% to below $41,000 at the start of Wednesday, around the time when Matrixport released a report on the potential rejection of Bitcoin spot ETFs. However, it is more likely due to excessive leverage in an overheated market.
Bitcoin’s rapid decline on Wednesday reminded investors of the asset’s price volatility, with observers quickly pointing to a research report predicting the rejection of BTC spot ETFs that was highly anticipated in the U.S., and even comments from CNBC host Jim Cramer as potential triggers.
However, overleveraging continued to drive the market into a retreat.
BTC dropped to as low as $40,800 from around $45,000 in just a few hours at the start of Wednesday, around the time when Singapore-based digital asset company Matrixport published a report by Markus Thielen predicting the U.S. Securities and Exchange Commission’s rejection of all Bitcoin spot ETF applications, reversing its Tuesday outlook for approval and a BTC surge to $50,000.
Jihan Wu, co-founder of Matrixport, stated that the report is unlikely to have caused the crash and pointed out the weakness in cryptocurrency-related stocks in recent days, potentially signaling a downturn in digital assets.
“It’s unrealistic to believe that Matrixport’s report could cause the trillion-dollar market to collapse,” Wu posted late Wednesday in the UTC time zone.
“We also witnessed a sudden decline in cryptocurrency stocks in consecutive trading days, while the price of Bitcoin remained stable,” Wu added. “These events, prior to Markus Thielen’s report, seem to have had less impact and received less attention.”
Analysts have dismissed Matrixport’s contrary argument, stating that there is no evidence to suggest regulatory agencies will reject the applications and have provided odds favoring final approval. Therefore, the price of Bitcoin recovered from its Wednesday low to around $42,900 in the afternoon UTC time, but still traded nearly 5% lower over the past 24 hours.
The rapid decline occurred within a day after CNBC host and former hedge fund manager Jim Cramer’s positive comments on Bitcoin, walking back on his negative stance in October. While unlikely, observers didn’t fail to point out his late remarks as a sign of an impending drop, based on Cramer’s popular meme about his infamous market-timing record. (Example: BTC is still up about 60% since his October remarks.)
Senior analyst Vetle Lunde of K33 Research said the market was overheated and overleveraged, making it vulnerable to a downturn.
“The market was very overheated before the crash, with the long position being the aggressor, evident through the capital ratio and futures insurance fee pushing the annualized rate above 50%,” Lunde explained in an email interview. “This made the market extremely susceptible to price declines.”
The report’s dissent from Matrixport acted as an appropriate catalyst to unwind overleveraged positions leading to liquidation, exacerbating the crash. Nearly $560 million in long-term derivative positions with leverage – betting on higher prices with borrowed money – were wiped out until Wednesday at the time of writing, the highest amount in at least three months, CoinGlass data showed.
“It was a typical prolonged liquidation,” Lunde said.
Digital asset research firm CryptoQuant also attributed the decline to exceptionally high funding rates on the bitcoin futures market, adding selling pressure from bitcoin miners and high profit rates of short-term holders as contributing factors.
CryptoQuant analysts last week said that a spot bitcoin ETF approval is likely to happen and potentially be a “sell the news” event that could pull BTC to $32,000.
Spot bitcoin ETFs still likely to be approved
LMAX strategist Joel Kruger said in an emailed note that the overwhelming consensus is that an approval for a bitcoin ETF in the US is “a matter of when, not if.”
K33’s Lunde was of a similar opinion, saying that a denial seems highly unlikely based on Grayscale’s court win, and all back-and-forth between the SEC and issuers leading to updated S-1s and cash creations.”
