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Ye Yinghe, reporter of The Paper Source: The Paper While the price of Bitcoin has been rising at an accelerated pace, there has also been a more rapid correction.
According to the Bitcoin news website Coindesk, on January 11, the price of Bitcoin once fell to around $30,305, down 27.78% from its all-time high of $41,962. In other words, the price of Bitcoin fell from $40,000 to $30,305 in just over a day. Previously, it took Bitcoin 6 days to rise from $30,000 to $40,000. Bitcoin price trend over the past week Source: Bitcoin News Information Network Coindesk
A week ago, on January 4, Bitcoin also fell from more than $34,000 to around $28,000 in one day. Before that, it took Bitcoin nearly 4 days to go from $28,000 to $34,000.
As of press time, the price of Bitcoin has rebounded to around US$35,966, up 1.28% in 24 hours. The transaction volume of Bitcoin in 24 hours was US$99.95 billion, with a market value of US$668.9 billion.
High leverage margin calls and retail investors panic selling
Why is Bitcoin falling faster after entering a bull market?
William, chief researcher at OKEx Research, previously pointed out to The Paper that the main force of the Bitcoin market has shifted from being dominated by institutional investors to being dominated by small and medium-sized investors. The notable feature of this stage is that the market will experience irrational prosperity, stronger speculative sentiment, and more intense price fluctuations.
Yu Jianing, rotating chairman of the Blockchain Committee of the China Communications Industry Association and president of Huobi University, told The Paper, "After a week of continuous rapid rise, a large number of accumulated profit-taking orders chose to exit at high levels, resulting in a relatively large retracement of Bitcoin prices. In addition, many retail investors chose to use higher leverage multiples for investment. Before the decline, the funding rate of Bitcoin perpetual contracts remained high for a long time. With a high market leverage ratio, once a price correction occurs, some high-leverage positions will be liquidated, which will accelerate the decline."
According to the market statistics report of Hetongdi, the top two peaks of liquidation in the entire network (including five exchanges: Huobi, OKEx, BitMEX, Binance, and Bybit) in the past 30 days occurred on January 4 and January 11, approaching US$1 billion and US$1.2 billion respectively, and most of them were long liquidations.
Source of statistics on liquidations in the past 30 days: Yu Jianing of Contract Emperor said that since the Bitcoin market is a relatively small capital market, profit-taking by institutional users or large coin holders can easily cause pressure on the currency price, which in turn affects the investment sentiment of retail investors and triggers potential bear market panic among retail investors, leading to panic selling and signs of a faster decline.
Xu Tong, a senior analyst at Huobi Research Institute, also mentioned that the reasons why Bitcoin fell faster than it rose include that if institutions adopt a rapid decline method in the wash-out stage, it will cause a certain panic among some followers and retail investors, and then they will choose to sell, and the market will begin to show signs of decline, which will further bring fear to investors, making them believe that there is a risk of falling in the market, resulting in a faster decline.
She also mentioned two reasons: First, during the rise, if the speed is too fast, it is easy to cause the market's fear of missing out to be too strong, which will attract the intervention of short-term traders and investors who follow the trend, so institutions generally build positions on a small scale, making the rise slower. Second, most of the sharp rises and falls are caused by the large flow of institutional funds. Due to the almost continuous rise for a week, a large number of profit orders have been accumulated. In a short period of time, institutions will close these profit orders, resulting in a large outflow of funds and causing Bitcoin to fall.
Dollar rebound, miners selling, and Coinbase outage
From the perspective of the macroeconomic environment, Yu Jianing believes that the pullback on January 11 can be regarded as a risk-averse measure taken by mainstream overseas investment institutions. He believes that one of the reasons for the rise of Bitcoin this year is the continued decline of the US dollar index. At present, the Biden administration is about to take office, and "bad news is good news". The US dollar may rebound, and global commodity assets have experienced a sharp pullback, and the digital asset market has also adjusted accordingly.
In recent days, the US dollar index has seen a significant rise. As of press time, the US dollar index was approximately 90.49, down 0.06 from the previous day and up 1.16% from the closing price of 89.42 on January 6.
He also pointed out that many Bitcoin miners choose to sell at relatively high prices. According to the data from cq.live, the Miner Position Index (MPI) has hit this year's high. An MPI index above 2 indicates that miners tend to sell Bitcoin after mining; if the MPI is negative, it indicates that they are optimistic about the short-term trend and choose to hoard Bitcoin. The current value is about 5.26, indicating that miners are selling Bitcoin in the over-the-counter market or exchanges. In addition, ByteTree's data also shows that Bitcoin miners have mined a total of 6,894 Bitcoins in the past week, but sold 10,047 Bitcoins, which means that miners have sold nearly 3,153 Bitcoins in total.
Yu Jianing mentioned that another reason for this decline is that trading platforms such as Coinbase, the largest compliant exchange in the United States, experienced website crashes after the market fluctuated violently, users' transactions were delayed, and many buy orders could not be traded normally. This also caused the Bitcoin price on the website to be far lower than the market price, further exacerbating market panic.
"Because of the Coinbase system failure, we could only sell yesterday and could not place buy orders. Buy orders could not be executed and the order of the entire trading world was disrupted." A cryptocurrency practitioner also said.
Regulators warn of Bitcoin volatility risks
It is worth noting that the recent ups and downs of Bitcoin have also aroused the vigilance of regulators in various countries.
On January 12, according to the New Zealand Herald, the New Zealand Financial Markets Authority (FMA) issued a warning, advising New Zealanders to be cautious when investing in cryptocurrencies.
"New Zealanders considering buying cryptocurrencies such as Bitcoin should be aware that they are high-risk and highly volatile assets," a spokesperson for the Financial Markets Authority said. "Cryptocurrencies are unregulated in New Zealand and are frequently exploited by scammers and hackers."
The UK is also strengthening its regulation of cryptocurrencies. According to a report in The Times on January 9, HSBC decided to stop providing cryptocurrency trading services to British customers, including prohibiting customers from depositing funds from digital wallets into HSBC. At the same time, many other British banks prohibit customers from using credit cards to purchase digital currencies such as Bitcoin.
"Virtual currencies represented by stablecoins are facing increasingly complex compliance risks. As more and more economic activities migrate to the blockchain, the industry faces tremendous compliance pressure. The issuance of stablecoins such as USDT exploded in 2020, setting a record high. Behind this, some of the demand for use comes from normal compliant transactions, but there are also problematic black and gray demands such as money laundering and illegal financing. In the future, the blockchain industry will face more and more compliance challenges." Yu Jianing said.
He pointed out that the 2020 annual virtual currency anti-money laundering report released by PeckShield showed that the value of unregulated outbound virtual currency in 2020 reached US$17.5 billion, an increase of 51% from 2019, and is still growing rapidly. Fraud cases involving virtual currencies continued to be high, reaching 151, an increase of 655% from 2019.
Yu Jianing said: "Since the second half of 2020, black industries such as fraud, attacks, extortion, gambling, and gray industries such as money laundering and running points have begun to use virtual currency to launder money. Extortion cases have increased rapidly, and the anti-money laundering situation of virtual currency is severe. In 2021, it is necessary for the blockchain and digital asset industries to adopt a more stringent and prudent KYC (know your customer) review mechanism and implement stricter anti-money laundering standards."
Editor-in-charge: Zheng Jingxin Proofreader: Luan Meng |
