Analysis | Review of the March 12 Bitcoin panic stampede

Editor’s Note: The original title is “Review and Analysis of the 312 Bitcoin Panic Stampede | Tokeninsight”

Before March 12, the price of Bitcoin was always hovering around $7,000-$8,000, and the market was asking: "Is Bitcoin a safe-haven asset?" After yesterday's turmoil, I believe many people have given up the idea of ​​using Bitcoin as a safe-haven asset.

At 6:00 pm on March 12, 2020, Beijing time, Bitcoin began to fall rapidly from nearly $8,000 to around $6,000, and then fell below $6,000. On the morning of the 13th, the price of Bitcoin continued to fall, with some trading platforms dropping to $4,000; currently (19:00 on March 13, 2020, Beijing time), the price of Bitcoin is fluctuating around $5,000.

This market turmoil exposed many problems. The most serious one is the liquidity problem of Bitcoin. The second is the platform performance touted by many trading platforms. In fact, most platforms have more or less become unstable in the face of the actual crisis. These problems have further blocked the Bitcoin liquidity channel, exacerbated market fears, and caused prices to continue to fall.

Reasons and simple process

Regarding what happened to Bitcoin in the past dozen hours, TokenInsight believes that this is due to:

Bitcoin's liquidity stampede + panic psychology + liquidity channel obstruction + partial selling pressure in the spot market jointly caused

First, there were large sell orders to sell Bitcoin spot. Since most transactions had limited buying depth, the price of Bitcoin was quickly suppressed. Then the spot market price was transmitted to the futures market, causing the futures leverage to fall. Long positions were unable to react and were liquidated in large numbers (in the extreme case, more than 10 billion yuan of long positions were liquidated in the entire market, and only 20 million long positions were left in the market). During this period, long positions that had not been liquidated were also liquidated due to insufficient buying and could not be covered in time, further reducing the market's expectations for Bitcoin prices. The market quickly developed a fear mentality, which had a linkage effect in the futures and spot markets. Investors began to panic, market sentiment was ignited, and short positions launched a massive attack.

Liquidity data analysis

The "selling pressure" problem in the spot market (the following partial market data can only partially reflect the liquidity of the exchange and cannot be directly linked to the liquidity of the exchange. The main reason is that the following analysis only considers the liquidity of the 10-level market. In addition, the liquidity data of the market is also changing all the time. It is only used for horizontal comparison here to show readers some phenomena and thoughts)

March 12, 2020 afternoon - Binance - BTC/USDT liquidity data

Source: TokenInsight

The above picture shows the liquidity data of Binance on the afternoon of the 12th. It can be clearly seen that the selling of Bitcoin started first, the selling pressure increased, and the price of Bitcoin fell rapidly. In response, the buying also began to increase. It can be clearly found that the liquidity of Bitcoin increased significantly when the price began to fall. However, starting from 6 o'clock, the selling pressure increased rapidly. Although the buying also increased at this time, the cumulative gap between the two has reached more than 100,000 bitcoins. In the subsequent stage, the selling continued to put pressure on the buying, and the gap slowly decreased from 50,000-60,000 to 20,000-30,000. As for why the selling pressure continues to be greater than the buying pressure at this time but the price has not fallen, the reason is that the price difference between different exchanges is not large at present, and the market price is jointly determined by the buying and selling orders (or supply and demand) of all exchanges.

Huobi-BTC/USDT-liquidity data, March 12, 2020, afternoon

Source: TokenInsight

The second picture shows the data of Huobi. Similar to the data of Binance, Huobi also had a huge gap of nearly 100,000 bitcoins between the buy and sell orders between 6pm and 7pm. Unlike Binance, Huobi's buying orders increased rapidly in the following period. Combined with the data of Binance, this also partially explains why the buying orders continued to be greater than the selling orders but the price did not rise rapidly.

Finally, let’s look at OKEx. OKEx’s data is quite special, and only 5-level market statistics are shown below (Binance and Huobi both have 10 levels). OKEx’s data is quite different from Huobi and Binance, and is only shown here. Due to different statistical calibers, we will not analyze it here, and readers are requested to observe and judge for themselves.

OKEx-BTC/USDT-liquidity data, March 12, 2020 afternoon

Source: TokenInsight

The above analysis shows the liquidity of the three exchanges on the afternoon of March 12 on an hourly basis. The following analysis shows the detailed data for the hour from 19:00 to 20:00 on the evening of the 12th, with a five-minute scale.

19:00-20:00, March 12, 2020 - Binance - BTC/USDT - Liquidity Data

Source: TokenInsight

Huobi-BTC/USDT-liquidity data from 19:00 to 20:00 on March 12, 2020

Source: TokenInsight

OKEx-BTC/USDT-liquidity data from 19:00 to 20:00 on March 12, 2020

Source: TokenInsight

By observing the data from Binance, Huobi and OKEx from 19:00 to 20:00 on March 12, it can be seen that when facing such extreme market conditions, the buying and selling performances of the leading exchanges varied greatly.

Binance's liquidity data shows that when BTC continued to fall, the total amount of selling orders in ten levels rose rapidly, and the total amount of buying orders did not change much. The selling pressure continued to increase from 19:25 to 19:40-45, reaching a maximum of 14,000 Bitcoins in five minutes. Huobi showed different data performance from Binance, and even had completely opposite signs: the peak of selling pressure occurred from 19:05 to 19:10, reaching 23,000 BTC; the selling pressure began to reverse when Binance was under the highest pressure (19:45), and the buying exceeded the selling pressure at 19:55.

Real trading volume

The following chart shows the real trading volume analysis of the above three exchanges on March 12:

Actual trading volume of three exchanges on March 12, 2020

Source: TokenInsight

The BTC/USDT transactions on March 12th on the three exchanges were relatively real, and there was no serious volume manipulation, which also shows the real liquidity of the market. (For the method of reading the above chart, interested readers can go to the TokenInsight official website to refer to the "Real Trading Volume Research Report of Exchanges" released by TokenInsight).

Liquidity channel blockage

Trading platform blocked

In addition to the problem of insufficient Bitcoin liquidity in the market, the system carrying capacity of many exchanges has also exacerbated the congestion problem. This is mainly reflected in two places. The first is that the risk control capabilities of some exchanges are insufficient and cannot withstand the test of extreme market conditions, resulting in direct downtime.

The second point is that some functions of the exchange have stopped service, the core of which is the fiat currency channel. According to TokenInsight, in extreme cases, many exchange users reported that the exchange's OTC market and internal account transfers were suspended. Users were unable to withdraw or deposit funds at all. This is most directly reflected in the desire for USDT in the market. Since the afternoon of the 12th, the over-the-counter premium of USDT has continued to increase, and currently remains at around 7.3 (the exchange rate of the US dollar to the RMB was 6.89:1 at the time of writing). The blockage of deposits directly led to the inability to cover some long orders at the time, and also directly led to the inability of users who wanted to buy Bitcoin to buy, leaving the existing market buying pressure alone.

USDT OTC price on a certain trading platform (18:33, March 13, 2020)

Source: TokenInsight

Blockchain network congestion

In addition to the above-mentioned congestion problems, blockchain network congestion is also an important reason. According to relevant data from Etherscan, Bloxy and Coinmetrics, the transaction volume in the Ethereum network has increased dramatically in the past 24 hours, directly leading to the congestion of USDT transfers based on ERC-20. At the highest point, the average Gas fee in the Ethereum network increased by more than 10 times compared to normal times.

Source: ETH Gas Station, unit: Gwei

Transaction status of different digital assets on the Ethereum network in the past 24 hours

Source: Bloxy

Summarize

This crisis is actually another baptism for the digital asset industry. Although we don’t want to admit it, the industry will experience a cold winter in the next period of time. Survival is currently a challenge for industry institutions and practitioners. Second, combined with the continuous rejection of Bitcoin ETFs, we must admit that there is still a relatively serious price manipulation in the Bitcoin market, which is also the core reason why Bitcoin ETFs are constantly rejected by the SEC. Third, this crisis is an economic crisis + financial crisis that is more serious than a simple financial crisis. What’s more terrifying is that the economic crisis has just become prominent, and the impact of the new coronavirus has just begun to appear worldwide. Many countries and regions are still in the early stages of the virus. Fourth, the digital asset market represented by Bitcoin is in an excessive panic stage, just like other markets around the world. In the face of a major crisis and panic, financial models and diversified investments are actually ineffective. It is not particularly meaningful to simply discuss whether Bitcoin is a safe-haven asset.

Watch him/her/it build a tall building, watch him/her/it entertain guests, watch his/her/it building collapse. At this time, there must be countless voices in the market starting to question Bitcoin, "Is the halving a scam?" "Is Bitcoin a scam at all?" The people who discuss these topics at this time are basically the same group of people who ask whether they should buy Bitcoin when the market is rising and tout Bitcoin as the path to wealth and freedom.

The market has its ups and downs, and market sentiment will exacerbate these fluctuations. We still believe in the power of blockchain and the investment value of Bitcoin as a commodity. In the end, someone will definitely ask, is now a good time to invest in Bitcoin? When is the best time to invest in Bitcoin?

There are always risks in investment. The most important thing about investment is to identify your risk tolerance in advance. Bitcoin is a commodity. After measuring your risk tolerance, investing part of your assets in Bitcoin is also a way of financial management.