Babbitt Original | Futures prices have exploded one after another, miners are confused, is $3,000 the final hurdle?

“Bitcoin has only fallen by more than 20% a few times in history. The last time it plummeted was on March 12, 2020. I remember it very clearly, as if it was just yesterday.”

This is one of the hottest jokes today.

Why did it suddenly plummet? And it was halved! Many people gradually believed that it must be the dealer who was frantically dumping the spot market and then profiting from short positions in the futures market? Perfect harvest.

Is it really so?

Bitcoin plummeted, do you believe these reasons?

Dovey (Wan Hui), founding partner of Primitive Ventures, posted on Weibo, summarizing 5 reasons.

1. In the early days, whales sold off their coins. Many hardcore players from 2010 to 2011 sold their coins in preparation for the Great Depression.

2. The serial liquidation of leveraged contracts led to a liquidity crisis. Without circuit breakers and the central bank, prices could only be adjusted by the market.

3. The price anchor USDT cannot be supplied flexibly, and the fiat currency deposit and withdrawal channels are blocked, which may happen next.

4. Miners’ pledged positions are forced to close.

5. Systemic risks of exchanges.

Let’s analyze what Dovey means one by one.

The contract chain liquidation refers to the fact that due to a sharp drop in a short period of time, most long accounts are forced to close their positions and sell Bitcoin, which further lowers the spot price and causes more long orders to be liquidated again.

The deposit channel is like a channel for delivering fresh blood. Once it is cut off, there is no money in the market and no selling orders can be accepted. Many people should have experienced this in the past two days. Take Huobi as an example. The price of USDT has skyrocketed to 8 US dollars in a short period of time, and there are few sellers. It is difficult for you to buy the bottom of Bitcoin. Many people's long orders are close to the forced liquidation price, but they cannot quickly raise enough USDT to cover their positions and increase their margin, and then they watch their positions being forced to close.

BlockVC founder Xu Yingkai posted a picture on Weibo. The screenshot showed that at a certain time, the BTC price of Coinbase Pro, which uses USD for deposits, was $5,598.98, while the BTC price of Huobi Global Station, which uses USDT for deposits and withdrawals, was $4,451.31, with a price difference of $1,000.

"I have never seen such a huge price gap between fiat currency exchanges and cryptocurrency exchanges, and the market inefficiency is so strong. It is very difficult to avoid losing money and coins in such a market," he said.

This is most likely because there is a problem with the USDT deposit and withdrawal channels, resulting in a lack of liquidity, which has caused the price to fall wildly. However, QKL123 analyst Liu Qing believes that it is not ruled out that it is caused by the exchange system jamming or data jamming.

The fourth reason is related to miners. Since 2019, the mining industry has not only entered a centralized and professional stage, but also a large-scale financial stage. For example, miners pledge the mined Bitcoin to a third-party institution in exchange for USDT or legal currency to purchase mining machines or build mining farms. This leverage is less risky when the price of the currency is stable. However, in this round of plunge, when the price of the pledged Bitcoin is lower than the pledged price, the platform may force the position to be closed. This also strengthens the power of the market crash.

Fifth, there are systemic risks in the exchange. Wanhui did not specify what this is.

However, Weibo celebrity VTumbleBit mentioned that many mortgage loans, including exchanges doing hedging positions in Bitmax, believe that exchanges use users’ coins to conduct derivative operations.

In response to this question, FTX COO Constance Wang believes that judging from the value of the orders that eventually went bankrupt on Bitmax, most of them were retail investors, although this does not mean that there were no institutions involved. However, the blame for the serial liquidation cannot be placed on the institutions.

Xu Yingkai further wrote on Weibo that everyone may understand that this plunge came from leveraged lending and debt crisis, but who is responsible? From mining machine manufacturers, mining farms, exchanges, investors, lending tools, etc., everyone is part of the push for this tragedy to the end. This is a social experiment, this is a collective "conspiracy."

Wan Hui believes that on the evening of the 12th, the Fed's 1.5 trillion US dollars of liquidity support only brought the market back to life for 10 minutes. The market fell by nearly 10% during the trading day. In fact, the market is not short of money, but confidence. The sharp drop in Bitcoin is also a liquidity crisis.

In an interview with Babbitt, FTX COO Constance Wang analyzed that this plunge can actually be divided into two stages. The first stage is roughly from 9,000 to 6,500, which is largely due to the impact of the overall environment, including the U.S. stock market circuit breaker, the impact of the new crown pneumonia on the macro economy and the resulting panic. The second stage is from 6,500 to 3,800, mainly due to serial liquidations.

Constance Wang believes that serial liquidations are not a new phenomenon and have occurred before, but this time when various factors were mixed together, it caused a very big impact and panic.

Currently, as Bitcoin rebounded strongly to around $5,000 after hitting $3,800, the market panic has improved, but is it over? Perhaps not.

This round of Bitcoin plunge has opened a Pandora's box. It not only reflects insufficient liquidity, but also reflects that, at least in the world of cryptocurrency, systemic risks may really exist.

For example, DeFi is the first to be affected. At present, assuming that ETH falls further, for Maker DAO, they will have to repay the bad debts of insufficient collateral through the auction of governance tokens, just like BitShares did in the past. It is reported that MakerDAO had a surplus of more than US$500,000 before the price fell, and currently has a debt of more than US$4 million.

This is just one of them. I believe that due to this round of plunge, there may be some chain reactions that will gradually be exposed. We can only wait and see what impact they will have on the market.

Miners are confused, but many are still buying at the bottom and waiting

Obviously, the plunge is a nightmare for the Bitcoin mining industry. According to the official website of Biyin, at 0.38 yuan per kilowatt-hour, except for the latest Antminer S19Pro, the electricity costs of other Bitcoin mining machines account for more than 50%. Many mainstream mining machines have entered the shutdown period, among which the Antminer S9, which accounts for about 40% of the total network computing power, has been retired.

Is the mining exodus coming? Babbitt interviewed several mining industry leaders.

Mining self-media, Bitcoin miner Blockchain Miner Brother said that except for the Ant S9, the rest of his machines have not been shut down. However, the machines of some customers in the mining farm have been shut down, and customers have to wait and see for a few days.

"We will make a comprehensive observation based on the computing difficulty and electricity prices, and then look at the situation when it reaches the critical point of shutdown. We will take one step at a time and also recover funds to ensure liquidity," he said.

He believes that the current environment is not very favorable for mining in the short term, but if the global epidemic can be brought under control within a month, there will be a high probability of another wave (increase) before the halving. "Try to hold on, this is the darkness before dawn."

Liu Kuan, CEO of Jiejie Mining, said that no machines have been shut down yet, including some machines that have reached the shutdown price. "Try running for a few days, stick to it for 10 days, and wait and see. There is no other measure that can be taken in real time. If there is no rebound, a large number of people will die in 2-3 months. Many people suffered from insomnia last night."

In addition, she mentioned that as a mining machine dealer, she lamented that mining machines were not selling well at all, and many people were confused and didn’t know how much to pay for mining machines. But she said that many people were buying at the bottom, so she prepared some funds to buy mining machines.

The situation of Wang Dongwen, the founder of Jinshan Mining, is similar to that of the other two. He is also worried that this sharp drop will affect the cognition or plans of new participants. He also believes that you can hold the coins in the market and participate in the market when the time is right, and wait for a big rise in the future.

Chen Lei, the founder of BitBlue Whale, said that about 60,000 mining machines in his four mining farms were severely affected, and high-power machines have reached the shutdown price. He has shut down or temporarily adjusted the prices of some hosted machines as required by customers. Some cloud computing platform customers have complaints that need to be dealt with, and some customers who have not experienced such a sharp drop are very anxious.

"Now is definitely not the most difficult time. The market will increase concerns, and Bitcoin may also be further impacted. Players who need cash flow will have a harder time. The superimposed impact of the halving cycle may lead to a very difficult situation, but this is the normal state of the market. Players come and go, and the industry gradually upgrades amidst ups and downs. Players with rich risk control methods, ample cash flow reserves, and less leverage pressure will be safer. But from another perspective, when the industry's cash flow is tight and factor transactions are sluggish, it may also be a time of opportunity in crisis. I hope Bitcoin can hold the $3,000 mark," he said.