Why is Bitcoin falling? Analysts point out 5 potential reasons

Elon Musk's SpaceX reportedly selling its Bitcoin holdings, the bankruptcy of a Chinese real estate giant, and concerns about rising interest rates are among the theories behind the sharp drop in Bitcoin prices.

At around 9:35 PM UTC on August 18, the price of Bitcoin suddenly plummeted by more than 8% in 10 minutes, taking the entire cryptocurrency market with it and leaving many in the crypto community scratching their heads.

While there seems to be no consensus on the cause of the sudden market drop, several cryptocurrency market analysts shared their initial theories.

SpaceX sells off Bitcoin, raising interest rate concerns

eToro market analyst Josh Gilbert attributed the drop in share prices to an August 17 article in the Wall Street Journal, which stated that SpaceX may have sold some or all of its $373 million Bitcoin holdings.

“Whenever there’s a big name in the Bitcoin space, especially someone as influential as Elon Musk, it puts pressure on the price of Bitcoin.”

The price of Bitcoin suddenly dropped about 2.5 hours after the news was released.

Gilbert said another theory could be that sentiment has shifted quickly due to broader market expectations of future rate hikes by the Federal Reserve .

“If we also take into account some of the weakness we’ve seen in global markets over the last few weeks — particularly in risk assets — and anticipate that rates are likely to remain higher for longer, then this is a recipe for a pullback,” Gilbert explained.

He added: “Over the last month, Bitcoin has struggled to move higher, trading between $29,000 and $30,000, with little ‘good news’ to push the asset higher, which has only exacerbated the sell-off. ”

Government bond yields

CMC Markets market analyst Tina Teng holds a different view, arguing that the recent rise in Treasury yields is the root cause behind the sell-off.

Teng explained that rising bond yields usually indicate a reduction in liquidity in the broader market. “This could be the main reason for the decline in cryptocurrencies,” she said.

Furthermore, Teng said that while the Evergrande crisis may have an indirect impact on Bitcoin prices, she does not believe it is one of the fundamental reasons for the decline in Bitcoin prices. “It has a greater impact on the Chinese economy and investor sentiment,” she explained.

Whales Selling

While there are many other news events that could be responsible, anonymous derivatives trader @TheFlowHorse said the sudden drop in prices could be caused by a large sell-off by a large player, leading to further pressure on derivatives.

“This isn’t just a natural waterfall. Some big shot gave up on a goal and started it. The spot volume is barely comparable to normal volume.”

According to data from crypto analytics platform Coinglass, more than $427 million in long Bitcoin positions were liquidated in the past four hours. In the past 24 hours, traders holding long positions — betting that the price of a crypto asset will rise — saw more than $822 million in liquidations.

Over $427 million worth of Bitcoin long positions have been liquidated in the past 24 hours. Source: Coinglass

Horse described most explanations for the drop as “pure speculation,” saying that since the SEC report hinting at its approval of an Ethereum futures ETF was released shortly after the sell-off, large funds may have sold off their Bitcoin positions to “trigger a cascade of buying ETH.”

Bitcoin has recovered slightly since the crash, gaining 1.2% in the past two hours, according to TradingView data. As of the time of publishing, Bitcoin is changing hands at $26,619.

Its price appears to have been boosted by news that the U.S. Securities and Exchange Commission could approve an Ethereum futures ETF product as early as October.