Behind the Bitcoin crash: What is the biggest risk in the bull market?

Bitcoin is still continuing yesterday’s decline.

Since yesterday’s plunge of 10,000 USD and a short correction, Bitcoin has begun to falter again. At present, Bitcoin has fallen 6% to the 50,000 USD mark.

At the same time, “Bitcoin Tumbled” ranked No. 4 in the hot search on Sina Weibo.

This ranking is even higher than the previous “Bitcoin broke through $50,000”.

This round of decline, suddenly, caught people off guard.

After the crash, we can’t help but wonder, what caused this crash? After that, where will Bitcoin and the entire cryptocurrency go? And behind Bitcoin’s crash, what is the biggest risk in the bull market?

1. A sudden plunge

Beginning yesterday, Bitcoin plummeted from the highest price of $58,326 on the day to the lowest of $47,650. It plummeted by more than $10,000 in a single day, with a maximum drop of more than 20%.

1614064299419097-1According to statistics, on the day that Bitcoin plummeted, a total of 330,000 people across the network became victims of liquidation, and the largest single currency liquidation order was worth US$20.65 million.

In fact, not only did Bitcoin plummet, but last night, the global financial market experienced various degrees of correction.

A-shares and Hong Kong stocks both closed down. European indexes all opened low and further fell. Its major indexes all fell by more than 1%. The three major U.S. stock index futures also fell significantly. S&P 500 index futures fell nearly 1%, and Nasdaq futures fell more than 1%.

It is worth noting that in the process of decline in the global financial sector, the decline in blockchain concept stocks and technology stocks has been particularly pronounced.

Among them, Canaan Technology closed down 15.89%, the share price of cryptocurrency mining company RiotBlockchain fell 11.06%, and MarathonPatent fell 10.21%.

And Tesla, which just announced a high-profile $1.5 billion investment in Bitcoin, also fell 3.7% yesterday.

At the same time, the block chain concept stocks that live in the Hong Kong stocks are also not immune. Huobi Technology fell nearly 15%, Ouke Yunchain fell nearly 14%, and Xiong’an Technology fell over 7%.

The global financial market, whether it is the stock market or the currency circle, has ushered in a sharp drop.

2. Two potential risks of the current bull market

There are divergent opinions on the reasons for this Bitcoin crash.

The words of the new U.S. Treasury Secretary Yellen are considered to be a signal: Bitcoin is often used for illegal financing and its application efficiency is low. Bitcoin is highly speculative and investors should be careful. Digital currency may lead to faster and lower-cost payments, but many issues need to be studied, including consumer protection and money laundering.

1614064299417570In fact, this is not the first time Yellen has expressed concerns about Bitcoin. In January this year, when she participated in the US Senate hearing, she reiterated her belief that the use of Bitcoin is an illegal transaction. At that time, the price of Bitcoin also experienced a brief correction.

In addition, Yellen hinted that the Biden administration supports the study of the feasibility of the crypto dollar, which is contrary to the lack of interest during the former Treasury Secretary Steven Mnuchin; this also indirectly reduces the attractiveness of Bitcoin.

When attending a virtual conference hosted by the New York Times on Monday, Yellen said that it makes sense for the central bank to study the issuance of sovereign cryptocurrencies. The crypto dollar may help solve the obstacles to financial inclusion in the United States for low-income families.

Behind Yellen’s remarks is the problem that Bitcoin has always faced-regulation. Especially after its market value exceeds one trillion and is recognized and accepted by more and more large companies and institutions, the question of the direction of supervision is one of the huge risks.

On February 14 this year, US SEC official Hester Peirce stated that since Tesla, Bank of New York Mellon, and Mastercard all support cryptocurrency as an alternative asset class, there is an urgent need for a clear cryptocurrency regulation system.

In addition, on the eve of the Bitcoin crash, South Korean financial regulators introduced new regulatory measures for cryptocurrency exchanges, requiring each exchange to mark and inform its platform of any seemingly abnormal transactions within three working days. .

In addition, the Securities and Exchange Commission of India also stated on February 22 that holding cryptocurrency is a “red flag” and that Indian companies should completely abandon their cryptocurrency holdings before applying for listing.

Coincidentally, on the same day, IG Group, a British financial and economic company, was affected by the ban by the British Financial Market Conduct Authority and announced that it would stop providing crypto derivatives services to retail users.

Earlier due to Musk’s “calling for orders” behavior in Bitcoin, many industry insiders, including “Doctor Doom” Roubini, said that Musk’s announcement about Bitcoin before Tesla invested in Bitcoin ‘S tweet is a market manipulation, and the US Securities and Exchange Commission (SEC) should investigate this.

Trader Peter Brandt is even more alarmist today, warning cryptocurrency investors to review the history of gold. In theory, Bitcoin may be banned. Historically, in 1933, President Roosevelt signed a bill to confiscate gold bars and declared possession of gold bars illegal.

In addition, another risk in the development of the Bitcoin market is the Fed’s fiscal and monetary policies.

After the outbreak of the covid-19 pneumonia epidemic, the global flooding has provided sufficient financial support for the global financial market and the bull market of Bitcoin, such as the United States.

After entering March 2020, because the Federal Reserve has launched an unlimited QE policy and the United States has launched a huge economic stimulus plan, the result has increased market liquidity and the continued depreciation of the U.S. dollar, which has promoted U.S. stocks and cryptocurrencies that are highly correlated with U.S. stocks. The currency market continues to rise.

1614064299415292Former U.S. Treasury Secretary Summers previously stated that President Biden’s $1.9 trillion bailout plan may inject too much cash into the real economy, induce the economy to exceed the production capacity ceiling, and trigger inflation. Under the dual impetus of overheating and rising prices, the Fed is likely to be forced to raise interest rates earlier than market expectations. He believes that it is likely to take interest rate hikes before the end of 2022.

At the same time, the US money market is betting that the probability of the Fed raising interest rates by 25 basis points by the end of 2022 is 70%, up from about 50% last week. Goldman Sachs Group strategist Praveen Korapaty said that the Fed hopes to end the asset purchase plan before starting to raise interest rates, which means that the earliest feasible time to raise interest rates is around the end of 2022.

Yellen also said in an interview with reporters that the current federal debt interest payments accounted for about 2% of GDP, and this figure is similar to that before the Fed started to raise interest rates sharply in 2007.

Once the Fed raises interest rates, it means that market liquidity will decrease and the U.S. dollar will strengthen. The phenomenon of funds flowing out of the stock market will be more obvious, and the stock market will fall.

As the time for the boots to land has become more certain, the entire financial market has responded accordingly. Yesterday’s global market’s plunge was evident.

However, it is worth noting that since the 312 Black Swan incident, and with the strong entry of international giants such as Grayscale, MicroStrategy, and Tesla, the relationship between Bitcoin and the entire cryptocurrency market and the traditional financial market has long been ” Intimacy”.

With the decline of financial markets, Bitcoin has not been spared.

Finally, the rising Bitcoin is also facing the potential test of declining market liquidity.

According to Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase, Bitcoin has risen about twice in the past three months, but liquidity in the Bitcoin market has deteriorated.

Previously, Nikolaos stated in a report on February 19 that at present, the liquidity of the Bitcoin market is much lower than that of gold or the S&P 500 index, which means that even small capital flows can have a significant impact on prices. New investors in Bitcoin should be prepared for large fluctuations, the price may plummet, just like the previous surge.”

However, despite the risks, although Bitcoin has plummeted, there is no need to be overly pessimistic.

Zhai Zhenlin, the unknown fund of Shuimu, once stated that from a technical analysis point of view, Bitcoin is currently at the end of the third wave of the five waves of the bull market, and may peak and fall back in the short term. After adjustment, it is expected to continue to rise in the second half of the year. And the market is currently in a speculative stage, and there is no signal of a bull market peak.

As Tyler Winklevoss, one of the founders of Gemini said, Bitcoin has always been two steps forward, one step back, and then two more steps forward. Few people understand this.

Last year’s global release, coupled with the launch of Grayscale and Paypal’s compliance investment channels, coupled with the demonstration effects of technology giants such as Tesla and Twitter, not only brought sufficient funds to the cryptocurrency market, but also enabled The concept of Bitcoin and the entire cryptocurrency has been promoted to a greater extent worldwide.

As a result, it has also brought to the market more than $50,000 in Bitcoin and a huge cryptocurrency market that surpasses Amazon and ranks third in the world with a maximum of $1.76 trillion.

Today is different from the past. In any case, although the current Bitcoin and the entire cryptocurrency market are still being criticized, the admission of many institutions and the huge market value show the rationality of its existence to the world.

As we are in it, what we need to pay attention to is the impact of global economic trends and regulatory policy changes on the Bitcoin and cryptocurrency markets.

Literature reference:

1. “Why did the two big guys join forces to strangle the Bitcoin plummeting agency that the market outlook will be better than gold? “Source: Sina Finance.

2. “Bitcoin plummeted by 20% late at night, 360,000 people broke their positions within 24 hours”, source: Jiemian News.

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