The violent drop on May 19 washed out the "leverage" and Bitcoin regained its market dominance

On May 19, 2021, after seven consecutive days of selling, Bitcoin accelerated its decline to $29,000 per coin, a daily drop of more than 30%, and the global cryptocurrency market value was halved. The term "cryptocurrency crash" directly rushed to the third place on Weibo's hot search list.

Data shared by Lex Moskovoski, chief information officer of Moskovoski Capital, showed that 22,917 bitcoins were transferred to centralized exchanges in one hour on May 18, and the hourly inflow was the largest since the "Black Thursday" crash in March 2020. The inflow of funds to exchanges is usually interpreted as assets being transferred to centralized platforms for sale.

The market sentiment for Bitcoin was described as “extreme fear.” Some analysts believe that the factor that triggered the surge in inflows was the next day’s deadline for controversial stablecoin issuer Tether to disclose its quarterly financial records as part of its settlement with the New York Attorney General’s Office.

There are also some people who believe that the direct cause of the decline is the announcement jointly issued by the three major financial associations on May 18. The China Internet Finance Association, the China Banking Association, and the China Payment and Clearing Association require financial institutions, payment institutions and other member units not to use virtual currency to price products and services, not to underwrite insurance business related to virtual currency or include virtual currency in the scope of insurance liability, and not to directly or indirectly provide customers with other virtual currency-related services. This means that the probability of users using centralized exchange OTC services being frozen is greatly increased, and the difficulty in cashing out directly causes market panic.

There is no doubt that other cryptocurrencies have also entered a downward channel as Bitcoin fell. Ethereum fell to a low of $1,736 per coin, a 24-hour drop of more than 45%, the largest single-day drop in Ethereum since March 12, 2020.

According to Messari, there has also been a huge market sell-off in the decentralized finance sector, with DeFi-related tokens being the biggest losers. This includes maker (MKR), yearn.finance (YFI), compound (COMP), uniswap (UNI) and chainlink (LINK). Joel Kruger, currency strategist at LMAX Digital, said, "Holders are all selling today, and they are all related." Some investors complained: In the past, the plunge was just a shrinkage of everyone's assets and the liquidation of contracts. But now with on-chain lending and machine gun pools, there are more ways to return to zero.

Cryptocurrency derivatives and leveraged traders liquidated a record 10,525 bitcoins in one hour as the price of bitcoin quickly dropped by $8,000.

After a large number of leveraged transactions were liquidated, Glassnode data showed that some whales took advantage of this opportunity to buy at the bottom. They quickly put the newly acquired bitcoins into their personal wallets. The 16,895 bitcoins that flowed out within 10 minutes at 6 a.m. on May 19 were proof of this.

On May 20, Bitcoin rebounded in a V-shape, returning to $42,000 per coin, up 15% on the day. Ethereum broke through $2,900 per coin, up 14.5% on the day. After yesterday's sharp drop, U.S. blockchain stocks generally rose before the market opened today, among which The 9, Ebang International, and Bit Digital rose by more than 3%, and Marathon Digital and Riot Blockchain rose by more than 1%.

It’s not entirely clear whether the cryptocurrency market has come out of yesterday’s haze. “The catalyst is a market that was at risk of a correction after a parabolic rise, and a market that is feeling a little more pressure from global macro forces that are weighing on risk-related assets,” Kruger said. “Downward pressure from the U.S. stock market in the coming weeks may be the biggest risk for cryptocurrencies right now.”

As of press time, the share of Bitcoin has rebounded to 43.34%. The dispersal of hot money and the high concentration of Bitcoin chips may not be a bad thing for the entire crypto market.