The cryptocurrency and stock markets performed a double dive, why did BTC crash? How will BTC perform next?

There is an extremely subtle relationship between the currency market and the stock market.

Both are markets that are sought after by capital and both are heaven and hell for speculators. The currency market and the stock market have both a mutually dependent relationship and an alternative competitive relationship.

To explain it from the simple Chinese philosophy, the currency market and the stock market are both mutually reinforcing and mutually exclusive...

❖BTC flash crash❖

Since Monday, BTC has fallen for two consecutive days, and other cryptocurrencies, led by ETH, have fallen even more horribly. Compared with the decline of BTC in January this year, the decline in the past two days should be regarded as a flash crash.

On January 8, 2021, BTC hit a new high of $41,950, and then fell for five consecutive days. The first day saw a small drop, and then it began to fall sharply, reaching the low point at that time on the fourth day, with the maximum drop of 27.49%. Afterwards, it rebounded slightly, and then 10 days later, it fell to the lowest point of $28,850, with the maximum drop of 31.23%.

In this current wave of decline, BTC fell sharply on the first day after reaching $58,352, and fell again on the second day. On the third day, which is today, it still showed a downward trend after opening. The maximum decline in 2 days was 19.48%.

This wave of decline came faster and the decline was more obvious.

There are four possible reasons that may cause drastic changes in BTC prices:

The first type: BTC itself has negative events. For example, the computing power war when BCH and BSV forked at the end of 2018. On the one hand, both sides needed funds for the computing power war, so they sold BTC, causing the price to fall. On the other hand, the computing power war consumed manpower, material resources and financial resources just for the fork, which made the world think that the so-called decentralization of BTC was a farce. Therefore, BTC fell sharply at the end of 2018. Obviously, there is no negative event in BTC at present.

The second: As a result of market fluctuations, BTC experienced a crazy rise and then a crazy fall. However, in January 2020, BTC first rose by $10,000 in half a month, and then rose by another $10,000 in 7 days, a 100% increase in 21 days. At present, BTC has risen from around $30,000 to $58,000 in nearly a month. This increase is not faster than the previous wave, but it is also relatively fast. Therefore, the rapid rise followed by a rapid pullback may be one of the reasons for the BTC flash crash in the past two days.

The third type: Boss’s comments. Before Tesla publicly announced its purchase of BTC, Musk changed his signature to BTC on Twitter, which led to an increase in BTC prices. However, when bigwigs such as Buffett expressed their bearish views on BTC, it did not cause a sudden drop in BTC prices, so the comments of bigwigs should not cause a flash crash in BTC.

The fourth type: macroeconomics. Changes in the macroeconomics still have a great impact on the cryptocurrency market. On March 12 last year, the U.S. epidemic broke out, and both the U.S. stock market and the cryptocurrency market plunged and fell sharply. So is the current decline likely to be similar to the situation on March 12?

❖Currency Market and Stock Market❖

S&P Index:

On Monday (February 22) and Tuesday (February 23), the S&P index opened with gaps. The overall trend was downward on Monday, but upward on Tuesday.

Nasdaq Index:

The Nasdaq performed similarly to the S&P on Monday and Tuesday, but the Nasdaq fell more on Monday and rebounded less than the S&P on Tuesday.

An article analyzed: "Because Tesla bought a large amount of BTC, the sharp drop in BTC prices caused Tesla's stock price to fall, thus causing the Nasdaq to show a more obvious decline."

It can be seen that BTC and the U.S. stock market fell at the same time on Monday. The U.S. stock market began to pick up on Tuesday, but BTC still did not pick up.

The performance of the U.S. stock market on Tuesday was quite interesting. It first gapped down at the opening and then rebounded significantly. Why was this?

❖Federal Reserve rate hike❖

It turned out that there was an expectation of an interest rate hike in the U.S. fund market, and people believed that the hike might come earlier than expected.

Once the Fed starts to raise interest rates, it means that the dollar will be released more slowly or even stopped, and the price bubble will end for both the US stock market and BTC. This should be one of the reasons why both the US stock market and BTC have fallen in the past two days.

So why did the U.S. stock market start to pick up again after opening on Tuesday?

In response to the expectations of the fund market, the Chairman of the Federal Reserve made a statement a few hours ago:

Federal Reserve Chairman Jerome Powell told Congress on Tuesday that the economy is 'a long way' from the central bank's goals and that policymakers have no plans to raise interest rates or reduce their bond-buying stimulus program any time soon.

"The economy remains a long way from our employment and inflation goals, and it will likely be some time before we make substantial further progress," Powell said in testimony before the Senate Banking Committee.

Despite encouragement from Republican lawmakers, Powell has repeatedly declined to weigh in on President Joe Biden’s $1.9 trillion rescue bill, saying the matter is beyond the Fed’s purview.

The article in the previous screenshot was published at 3 pm, while the U.S. stock market began to rise continuously at 2 am Beijing time.

It is basically certain that Powell has given the U.S. stock market a reassurance.

❖Pullback? Bear market? ❖

➤ First look at three sets of data

First, Biden announced a $1.9 trillion economic stimulus plan (money release plan) after taking office. However, this plan has not been passed yet, and the Republicans and Democrats are still negotiating on the matter. The Fed chairman mentioned above is also opposed to this plan. According to Wall Street News, the plan may be voted on this Friday or Saturday.

Second, the $1.9 trillion plan has not yet been officially passed, and the Biden administration has proposed an infrastructure plan starting with $3 trillion.

Third, in 2020, the US federal debt reached 134% of the annual GDP.

➤Interpretation and analysis

1. There is one possibility for the crazy decline, that is, the bull market is really over, and the market makers no longer wash or protect the market, but directly smash the market.

However, judging from the high debt of the US dollar, the US dollar should continue to release money. Moreover, the $1.9 trillion plan has not yet been passed, and a new plan of releasing money starting at $3 trillion is in the works. Therefore, the money release environment is likely to continue, and the rise of BTC has not declined.

What's more, BTC's own upward trend every four years is still there. Since there is no dollar injection, BTC may have the momentum to rise.

2. We have been talking about the 1.9 trillion dollar economic stimulus plan (water release plan) that is about to be passed. Of course, I am not very clear about the process of passing this plan. I can only say that it is likely to be passed on Friday or Saturday this week. At that time, it may trigger a new round of asset bubbles, including the US stock market and the cryptocurrency market.

In the currency market, we all know that all good news is bad news. Because before the good news appears, the main force of the market must first wash the market and absorb more chips.

Therefore, another possibility for the crazy decline of BTC is that there is not much time left for the main force, and the main force needs to complete the wash-out in a short period of time and then absorb more BTC.

The conclusion is that the sharp drop in a short period of time is because there will be good news in the short term, and the main force needs to complete the wash in a short period of time. Therefore, the probability of BTC callback is greater than that of a bear market.

❖Written at the end❖

This round of BTC decline may be due to three reasons: first, the correction force after BTC’s rapid rise; second, there is an expectation of interest rate hikes in the U.S. fund market, so both the U.S. stock market and the cryptocurrency market have fallen; third, the $1.9 trillion money printing plan is about to be passed, so a wash-out is needed before the good news.

From the first reason, BTC has indeed just experienced a rapid rise from $30,000 to $58,000, and the correction has not yet reached the level of January. The last wave of correction lasted half a month, and this wave may continue to fall next week.

From the second reason, the latest remarks by the Fed Chairman have calmed the sentiment of the investment market, and the US stock market has begun to recover. BTC may be relatively safe in the next few days.

From the third reason, BTC may start a new round of rise after the $1.9 trillion plan is passed (possibly this weekend).

Overall, it is difficult to predict the short-term trend of BTC. Personal subjective analysis : BTC should be relatively stable before this Friday. On Friday and Saturday, we will see whether the 1.9 trillion plan can be officially passed. If it is officially passed, it may rise. If it is still under discussion, it may fall again next week.

However, judging from the US Treasury bond situation and Biden's monetary policy, it is highly likely that the US dollar will continue to release money. Combined with the BTC cycle, the BTC bull market is likely to continue! Especially after the implementation of the 1.9 trillion water release plan, it will first promote consumption. When funds are gathered from the consumer market to the hands of capitalists, it is highly likely that they will continue to promote the stock market and the currency market.

Of course, these are just the subjective analysis and speculation of Little Bees and do not constitute investment advice!

Here, for the little bees who love creation more than making money, being able to bring inspiration, affirmation, and especially criticism is the greatest support for me!

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