What happened in the most turbulent week in Bitcoin history?

This article is from Arcane Research, translator: Moni

From March 9 to March 15, the Bitcoin market experienced the most turbulent week in history. So what happened this week? Let’s take a look at it together with Planet Master (WeChat: o-daily).

1. Bitcoin recorded the third largest price drop in history

Bitcoin: Daily price change percentage (Source: CoinMetrics)

Although Bitcoin suffered a sharp drop last week, its price is still up 36% year-on-year compared to a year ago.

2. Bitcoin and the stock market have achieved the highest correlation in history

1. After last week’s cryptocurrency market crash, the 90-day correlation between Bitcoin prices and the S&P 500 index reached its highest level ever.

2. In just one day, the correlation between Bitcoin and the S&P 500 index rose from a negligible 0.1 to above 0.5.

3. Although this correlation may decline significantly later, there is no doubt that the simultaneous decline of Bitcoin and traditional financial markets has dealt a certain blow to the concept of Bitcoin as a "safe haven asset".

Below: Bitcoin-S&P 500 90-day correlation (data source: CoinMetrics screenshot)

3. As the price of Bitcoin fell, altcoins also suffered a heavy blow. However, the market share of Bitcoin was not affected and remained relatively stable

1. March 9-15 was a historic week for cryptocurrency, which had a significant impact on the entire market.

2. However, when all cryptocurrency prices suffered heavy losses, Bitcoin’s market share was not affected and remained relatively stable.

3. Last week, the prices of most cryptocurrencies fell by more than 50%.

Below: The three cryptocurrencies with the largest price changes last week were Ethereum (43%), Bitcoin (39%), and Ripple (34%).

Figure below: Cryptocurrency market capitalization share (data source: Coinpaprika.com)

* Weekly % change

Below: Market capitalization-weighted index monthly performance (data source: Bletchleyindexes.com)

4. The market is still very fearful

Last week, the Fear and Greed Index fell shockingly, falling to 10 at one point (as shown in the figure below, data source: alternative.me). This situation also shows that all indicators are beginning to weaken. The Fear and Greed Index fell to 5 in August 2019. Since the index is based on some very specific data, such as trading volume, volatility, social media, survey data, dominance, and Google Trends, it may not reflect the real market sentiment. But everyone can feel that the fear in the current market is more serious than in August 2019.

5. Bitcoin ownership reshuffle! Sell-off leads to surge in trading volume

Last week, many Bitcoins were traded, and the average daily trading volume of Bitcoin reached an unprecedented level last week since the peak of trading in 2019. On March 12, $4.2 billion worth of Bitcoin changed hands, and the 7-day average real transaction volume also surged on March 12 to $1.5 billion, more than double the weekly transaction volume. Below: Bitcoin 7-day average real transaction volume (unit: million US dollars, data source: cryptowat.ch)

6. Bitcoin price crash leads to large fluctuations

Last week, a large amount of Bitcoin was transferred, which is very worthy of attention and may be much more important than people think.

Bitcoin's 30-day volatility jumped to over 7% - a high that the indicator hasn't seen since 2014. Below: Bitcoin-USD 30-day average volatility (data source: cryptowat.ch, CoinMetrics)

7. Bitcoin futures market also shows high volatility

1. With the recent drop in Bitcoin spot prices, the futures market has also become extremely volatile.

2. The premium we typically see on futures has disappeared, with most contracts now trading at a discount to spot prices.

3. For example, the March Bitcoin futures contract launched by Deribit is trading at a discount of $300 to the spot price, which means an 80% drop in the annualized premium rate.

4. Even those Bitcoin futures contracts expiring in September are currently trading at a discount to spot prices.

5. There is no doubt that bearish sentiment will definitely be reflected in the futures market.

8. What happened? Are whales dumping Bitcoin? A large amount of Bitcoin was transferred to exchanges before the market sell-off

1. PlusToken is a Ponzi scheme that transferred 13,000 BTC from its wallet to a cryptocurrency exchange through a mixing service last weekend. The Ponzi scheme has received a total of $2.9 billion worth of Bitcoin and currently holds approximately 61,229 BTC.

2. According to historical data, it can be identified that the time of transfer from PlusToken wallet coincides with the time of large-scale selling of Bitcoin in the market, and this time is no exception. Since a large amount of Bitcoin was transferred from PlusToken wallet, Bitcoin plummeted from $9,000 to $7,500 last weekend.

3. PlusToken's 13,000 BTC has been sent to the exchange and may be sold on the market in the future. Although the sell-off may last for a long time, it may also be part of the reason for the market crash on Thursday, March 12. Below: Comparison of PlusToken's trend and Bitcoin price trend (data source: Chainalysis)

5. Before the Bitcoin crash, a Bitcoin miner from ten years ago transferred 1,000 BTC to an exchange. On the morning of March 11, there was a transfer from 28 input Bitcoin addresses, which transferred 1,000 BTC to 55 different addresses, and eventually flowed to multiple exchanges including Coinbase, OKEx, and Huobi. These 28 addresses had mined Bitcoin from August to October 2010, and most of the 1,000 Bitcoins had never been transferred since they were mined in 2010.

6. Within a few hours after this transaction involving 1,000 BTC, Bitcoin fell from $8,000 to around $7,500, which may be due to these 1,000 Bitcoins.

7. Judging from the historical rate of return of Bitcoin, this sell-off may have triggered the third worst trading day in history. Below: A miner wallet in 2010 began to transfer Bitcoin. (Data source: Blockchain.com)

9. BitMEX liquidations surge, liquidity wiped out

1. On Thursday, March 12, the cryptocurrency derivatives market was "slaughtered" as BitMEX hit its highest liquidation rate ever. Under the pressure of a massive market sell-off, BitMEX liquidated $876 million in positions.

2. Throughout the night of March 12, BitMEX exchange was liquidating Bitcoin futures, and after midnight, the total liquidation amount of the exchange exceeded US$300 million.

3. According to BitMEX, due to hardware valuation issues, the exchange was shut down for maintenance between 02:16 and 03:00 CET, so all subsequent clearing transactions were also stopped.

4. During the BitMEX system maintenance, the price of Bitcoin rebounded sharply, from US$3,850 at 02:15 to US$5,200 at 03:00.

5. Many speculate that this has nothing to do with the hardware, but rather that this was done to avoid a complete crash, which is also a common practice in traditional stock exchanges, which is to reduce trading limits.

6. In fact, the BitMEX liquidation price may be greater than the liquidity price in the order book based on the liquidation price, resulting in a large liquidation feedback loop, which in turn may cause the BitMEX order book to be liquidated to zero.

7. Bitmex denied this theory and provided evidence that the downtime was due to excessive CPU pressure, and pointed out that they have prepared a healthy and large insurance fund to deal with such incidents.

Below: Bitmex Bitcoin-USD liquidation (unit: million, data source: skew.com, red bars are sell liquidation, black bars are buy liquidation)

10. What’s happening now? Will Bitcoin find support near the 200-week moving average?

1. No technical analysis can explain the price drop we saw during the week of March 9th - March 13th.

2. This actually gives investors a good reminder that technical indicators are just indicators.

3. In the week of March 9-13, the moving average indicators of Bitcoin prices all fell sharply, even falling below the 200-week moving average, which served as support when Bitcoin bottomed out and rebounded in 2019.

Will the 200-week moving average become a support level for Bitcoin price again? If not, support may be found around $4,000. Historically, there has been a lot of trading activity at this level.

Below: Bitcoin 50-week/100-week/200-week moving average (data source: Tradingview)