This week, we saw the most accelerated crypto sell-off since the COVID crash in March 2020. Many are wondering why the market corrected so severely, what caused it to bounce so significantly, and what it means for the future of crypto–so let’s dive in.
Although Bitcoin saw a high of $64,000 in April 2021, it’s been experiencing a steady sell-off since then. Contributors to the sell-off included conflicts of interest tied to Bitcoin’s energy usage, foreign regulations, and rising popularity in altcoins. Bitcoin recently came under fire from Elon Musk over the environmental issues and inefficiencies caused by mining, starting a full-on Twitter feud between the Bitcoin community and Musk. Needless to say, the market reacted.
Similar to how we see bullish and bearish trends in the crypto market, we also see positive and negative news cycles. Financial markets don’t respond well to fear, uncertainty and doubt– commonly referred to as FUD. What’s worth noting is that when the FUD starts to spread like wildfire, it appears as though the negative press starts to pile up. The reports seem to surface out of nowhere, with oddly convenient timing, until it all comes to a head resulting in a major selloff.
The most impactful FUD that took center stage this week was when China banned Bitcoin and crypto within businesses. The People’s Bank of China announced that financial services companies and payment services were banned from pricing or conducting business in virtual currencies (MSN). China represents more than 50% of Bitcoin mining, so how this will be enforced still remains to be seen. What is clear is that Bitcoin and crypto are disrupting plans for the digital yuan to be the primary digital currency of the Chinese Economy.
In more positive news, it was also reported that India is exploring the implementation of crypto regulations instead of an outright ban (CryptoPotato).
Ultimately, the hearsay around China’s announcement was the straw that broke the camel's back. This news caused one of the largest liquidation events in crypto’s history, totaling over $2.7 billion in liquidations in a single hour and over $6.5 billion in 24-hours (CoinDesk). Leverage-trading crypto whales stack their leverage orders across exchanges. Therefore, once volatility spikes and Bitcoin falls, leverage trades are liquidated, accelerating market volatility. Overall, the total market cap was down $460 billion.
The liquidation event was a result of short-term, high-risk traders using leverage. Newer retail investors and large leverage traders were documented to be the primary source of the sell-off. During the market dip, institutional outflows to the tune of hundreds of millions of dollars took place. This was evidenced (CoinTelegraph) by reports from trading platforms announcing a staggering rise in investment traffic and volume from institutions. Even Michael Saylor added to their MicroStrategy and organizational balance sheet–now totaling 111,000 Bitcoin (Twitter).
The market quickly rebounded, showing strength and promise. It was announced that Wells Fargo will open an investment product for its wealthy clients next month that gives them access to Bitcoin and cryptocurrency (BBC). Wells Fargo Wealth & Investment manages over $2 trillion in assets, more than the current market capitalization of all cryptocurrencies combined (CoinTelegraph).
Wells Fargo joins JP Morgan Chase and Morgan Stanley in announcing an institutional crypto product offering coming in the near future. Ark Investment’s Cathie Wood seems unphased, predicting a future price of $500,000 Bitcoin (CoinDesk). And, well, Elon Musk, despite the kerfuffle, was kind enough to tweet out that Tesla has diamond hands during the sell-off, implying that they are holding the rest of the Bitcoin on their balance sheet.
As the world watches the volatile market, we can’t take our eyes off what the big players are doing to get more deeply involved in the crypto industry. No skin, no win in this game.
Top Market Movers
- StormX (STMX) +3.1%
- IOTA (IOT) +3.0%
- Ontology (ONT) +2.9%
- Zcash (ZEC) +2.7%
Read This...
Cointelegraph > "Bitcoin whales feast as BTC price and the wider market melt down"
Cointelegraph > "Could DeFi-powered banks become an unstoppable force in finance?"
Decrypt > "5 Reasons for the Crypto Market's $500 Billion Bloodbath"
Decrypt > "Can Bitcoin Replace the U.S. Dollar as the World’s Global Reserve Currency?"
Cointelegraph > "Institutional investors dump Bitcoin for gold, JPMorgan analysts say"
Voyager Cryptocurrency Risk Disclosure
All investments involve risk and the past performance of a digital asset or other financial product does not guarantee future results or returns. Cryptocurrencies are highly speculative in nature, involve a high degree of risk and can rapidly and significantly decrease in value. It is reasonably possible for the value of Cryptocurrencies to decrease to zero or near zero. While diversification may help spread risk, it does not assure a profit or protect against loss. Investors should consider their investment objectives and risks carefully before investing. Previous gains may not be representative of the experience of other customers and are not guarantees of future performance or success.
