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Speculating on the Cause of Bitcoin's Downturn
The abrupt plunge in Bitcoin's value by over 8% within a span of ten minutes on August 18 sent shockwaves through the broader cryptocurrency market and has led to a flurry of conjectures. One of the theories put forth by Josh Gilbert, a market analyst from eToro, is tied to a report hinting at a potential offload of SpaceX's Bitcoin portfolio worth $373 million that was supposedly sold hours before the fall in price. The original source of this rumor was an article published by The Wall Street Journal on August 17.
Furthermore, Gilbert suggested that an alteration in the market sentiment in the wake of the U.S. Federal Reserve's impending interest rate hikes may also have played a role. He opined that this anticipation, coupled with recent fragilities in the global markets, could have laid the foundation for a market pullback.
Factors of Bond Yields and Market Liquidity
Contrastingly, Tina Teng from CMC Markets accredited the rise in government bond yields as the primary catalyst for the market's dip. She expressed that an increase in bond yields usually imply a drop in market liquidity, likely triggering the crypto market slump.
Although she acknowledged the potential indirect influence of the ongoing Evergrande crisis on Bitcoin's price, Teng remained skeptical about its direct effect on the recent tumble. She rationalized that the crisis primarily impacts the sentiment towards the Chinese economy and its investors.
Chinese Currency Devaluation's Impact on Bitcoin
On the other hand, Matrixport's Head of Research, Markus Thielen, rejected this skepticism and backed the idea of a probable Chinese Yuan devaluation having a significant effect on Bitcoin's price volatility. He pointed to the previous instance in August 2015 when the Yuan was devalued, leading to a Bitcoin price drop of nearly -23%, followed by a rally which saw an increase of +59% by the end of the year.
The Influence of Whale Trades on the Market
The sudden market shift could also be attributed to a 'whale', a term used for a trader who buys or sells large quantities of bitcoin. Crypto trader TheFlowHorse theorized that increased pressure on the derivatives market due to large scale Bitcoin sales by a 'whale' could be a huge factor. As per Coinglass data, bitcoin long positions worth over $427 million were liquidated within four hours of the price downfall, escalating to more than $822 million over 24 hours.
TheFlowHorse suggested that this was a speculative move by a large fund to sell off their Bitcoin, sparking a domino effect that eventually permitted them to buy more Ethereum (ETH), especially in light of recent news about the U.S. SEC showing a positive inclination towards an Ethereum Futures ETF.
Bitcoin's Recovery Post-Crash
The value of Bitcoin rebounded slightly post-crash by 1.2%, as per TradingView data. At the time of press, it was exchanged at $26,619. This recuperation is presumably supported by the likelihood of the SEC approving an Ethereum Futures ETF product in October.
