What is the reason for the three-day market correction?

Since December 8, the crypto market has fallen for three consecutive days, with the overall market value falling from the peak of 3.7 trillion US dollars on December 8 to 3.45 trillion US dollars on December 10. In the continuous rising market, what factors have led to the decline in the past few days?

Message level:

Google quantum chip progress : In the early morning of December 10th, Beijing time, Google launched its latest quantum chip "Willow" and claimed to have made significant achievements. People are worried that the chip may pose a threat to the security of cryptocurrencies: Bitcoin and other cryptocurrencies are mined by calculating complex mathematical problems to confirm transactions and record them on the blockchain. The demand for mining computing power is related to the number of "miners" in the network and the level of computing power. . Google's quantum chip "willow" has super computing power. In less than five minutes, it completed a "standard benchmark calculation" that the fastest computer today needs at least 10 to the 25th power years to complete. If it is applied to mining, it will greatly improve mining efficiency, making it difficult for traditional mining machines to compete with it in terms of cost and efficiency; on the other hand, the security of cryptocurrencies depends on mathematical problems in cryptography, such as elliptic curve encryption and RSA encryption, which are based on the assumption that current computing power cannot be cracked within a reasonable time. Quantum computers can run quantum algorithms such as Shor's algorithm, which are specifically used to crack encryption technology based on large number decomposition. Once quantum chip technology develops to a sufficiently mature stage, its powerful computing power may crack the existing cryptocurrency encryption system, resulting in the leakage of users' private keys. In summary, these factors have affected investors' confidence and led to a market decline.

Citron Research shorted MicroStrategy stock : The large-scale purchase of Bitcoin by large institutions such as MicroStrategy has driven up the price of Bitcoin to a certain extent, but it has also attracted market attention and concerns. The well-known institution Citron Research once pointed out that MicroStrategy was "overheated" and shorted it, causing MicroStrategy's stock to fall by 20% in one day. MicroStrategy's stock was once called shadow Bitcoin. The shorting of MicroStrategy's stock by institutions has also affected the sentiment of the crypto market to a certain extent.

Microsoft will not invest in Bitcoin for the time being: Microsoft's major shareholders opposed the company's Bitcoin investment proposal on December 10, local time. Microsoft's board of directors had earlier urged shareholders to reject a proposal from the National Center for Public Policy Research that the company invest 1% of its total assets in Bitcoin to hedge against inflation.

Market:

Long-term investors took profits:

Recently, some KOLs and institutions have been selling continuously. For example, on December 4, it was reported that Meitu sold the Bitcoin and Ethereum they had accumulated before, cashing out a total of about 180 million US dollars. These long-term holders have accumulated huge profits during the previous market rise. As the market showed signs of adjustment, they chose to take profits. The emergence of a large number of sell orders further exacerbated the market turmoil and caused a sharp drop in prices.

Market sentiment is overheated, and trading volume has declined in the past two days : According to Coinglass data, the trading volume of both contracts and spot reached recent peaks on December 8 and 9, while the overall trading volume of the cryptocurrency market declined to a certain extent on December 10 and 11.

Similarly, on the 8th and 9th, the market sentiment was hot, and the long contract positions reached a record high. When the market fell overall, the liquidation volume in the 24 hours from the 9th to the 10th hit a new high in this round of bull market, reaching 1.712 billion US dollars, of which 1.55 billion US dollars were liquidated for long orders and 162 million US dollars were liquidated for short orders. This also shows that the market sentiment is overheated, there are too many people who are long, the market has entered a correction, and clearing some leverage can also make the future market rise healthier and more sustainable.

Macroeconomic level:

US CPI data will be released: The US will release the US CPI data for November at 8:30 am local time on December 11. Before the data is released, the turbulence in the crypto market is normal. Because CPI is an important indicator for measuring inflation, and the US will determine the extent of the interest rate cut in December based on the inflation situation. The amount of interest rate cuts and the extent of monetary easing will affect people's preference for risky assets.

The dollar has strengthened recently . On December 9 and 10, the U.S. dollar index closed at 106.11 and 106.1926, respectively, up 0.09% and 0.08% from the previous trading day. The strengthening of the U.S. dollar is often seen as a signal of the relative strength of the U.S. economy, and it may also imply that there is a certain degree of uncertainty in the global economy. In this case, investors' risk appetite will generally decrease.

At the same time, the strengthening of the US dollar has increased the attractiveness of US dollar assets. For example, the yields of risk-free assets such as US Treasury bonds have risen. In pursuit of higher returns and asset security, investors will transfer funds from risky assets such as cryptocurrencies to US dollar assets, thereby exerting downward pressure on cryptocurrency prices.