Bitcoin fell below $26,000 in the short term, with over $1 billion liquidated in 24 hours

Around 5:30 AM Beijing time on Friday, Bitcoin suddenly plunged more than 8%, falling to $25,409 at one point. The price of Bitcoin on the crypto exchange Bitfinex was even lower, hitting a low of $24,715 at one point, and then rebounded to over $26,000. The decline caused the market value of Bitcoin to fall below $500 billion for the first time since June 16, and hit its lowest point since June 20.

CoinGlass data shows that as of press time, the plunge has resulted in more than $1 billion in liquidations in the past 24 hours, including $472 million in Bitcoin liquidations and $302 million in Ethereum liquidations, with most of the affected positions being long positions.

Reason for the decline?

The crypto community attributed part of the decline to a report in the Wall Street Journal, which stated that SpaceX's balance sheet wrote down $373 million in Bitcoin recorded in 2021-2022. Musk mentioned in a 2021 speech that SpaceX owns Bitcoin, but since the company is private, the specific amount was not disclosed.

Musk has been a long-time enthusiast of cryptocurrencies, with the popular Dogecoin symbol “Д in his X social media profiles. It is well known that any news related to Musk will affect the market.

Another piece of news that may have spurred the sell-off was that Chinese property developer Evergrande filed for bankruptcy protection in the United States, raising concerns among investors that problems in China's real estate market could spread to other parts of the global economy.

Bitcoin prices have been falling in recent weeks, wiping out about half of the gains made after BlackRock filed for a Bitcoin ETF on June 15.

According to Bloomberg, one of the macro factors behind the sell-off is the continued surge in global interest rates, especially in the United States, where the 30-year Treasury bond rate rose to 4.42%, the highest level since 2011. The 10-year Treasury bond yield is 4.32, just one basis point lower than the 15-year high. This not only suppressed cryptocurrency prices, but also hit risky assets in traditional markets.

Shiliang Tang, chief investment officer at cryptocurrency investment firm LedgerPrime, said: "Earlier this week, there was optimism that the Grayscale Bitcoin ETF resolution would come out this week, but the resolution was finally passed and nothing came of it. In addition, traditional markets have been weak all week, with the S&P 500 and technology stocks selling off, 10-year rates hitting highs, the dollar rising, and weak Chinese credit and economic data, all of which are unfavorable for risk assets."

Derivatives Market Bearish on Bitcoin

A report on commitments of traders (COT) from the U.S. Commodity and Futures Trading Commission (CFTC) showed that leveraged funds — hedge funds and commodity trading advisors — increased their bearish bets on cash-settled bitcoin futures listed on CME Group in the week ending August 8.

"Two-thirds of their positions are short (shown in red), while one-third are long (shown in blue). This is the largest position since April 2022," Lawrence Lewitinn, content director at crypto analytics firm The Tie, said in his weekly newsletter.

Lewitinn believes that while the improving trends and fundamentals in the cryptocurrency space continue to maintain optimism, more attention should now be paid to the potential spillover effects from macro to broader risk assets and even cryptocurrencies.

The drop comes after bitcoin had been trading in a narrow range for months. A measure of the original cryptocurrency’s price swings has been trending downward, with 90-day volatility this week hitting its lowest level since 2016, according to data compiled by Bloomberg. “Digital asset markets continue to trade within a historically low volatility range, with multiple indicators suggesting that investor apathy and exhaustion have reached extreme levels in the $29,000 to $30,000 range,” analysts at cryptocurrency market intelligence firm Glassnode wrote in a recent report. “A very boring, volatile, sideways market is likely to remain.”

Brian D. Evans , CEO of venture capital firm BDE Ventures, said in his tweet: "I think Bitcoin is ready for significant volatility, and all technical indicators suggest that Bitcoin will see some kind of major squeeze, either up or down. We've seen this pattern before. Bitcoin fluctuates for a long time, trading volume shrinks, and then there is a 10% rebound or pullback, which either creates panic or excites the market."

Crypto analyst Will Clemente pointed out in his tweet that Bitcoin's implied volatility saw its largest single-day increase this year, and analysts predicted that as prices fall, selling will intensify until support is found.