The crypto market crashed and dropped its price by 30% in a day though it closed 15% below its opening price at Coinbase. Altcoins followed Bitcoin downhill and dropped by 30%-50% crashing the market. Yesterday’s correction was on the same level as the Covid-19 crash. According to the data from Coingecko, its ATH BTC was at 64,804.72, and due to the crash, it made a low of $35,389.92
Popular cryptocurrencies like Ethereum and Dogecoin also fell 40-45%. Then in a short period, all the cryptocurrencies followed and started a bearish trend.
What Caused FUD Around Cryptocurrencies?
The crash was a result of multiple factors. The FUD started with controversy on USDT, a USD-backed stablecoin, and negative statements by Elon Musk. On top of that Chinese government banned cryptocurrencies to support their own stablecoin. This caused panic selling by new investors leading to liquidation in perpetual contracts.
Elon Musk is a well-known public figure with over 55M+ followers. When his company Tesla bought Bitcoin and started accepting it as payment, he got everyone’s attention. Now every crypto holder started following his Twitter account. Then on 13th May, He announced that Tesla would temporarily stop accepting Bitcoin as payment. He also said that Tesla is only suspending the usage of Bitcoin until mining transitions to sustainable energy.
He tweeted “Tesla has suspended vehicle purchases using Bitcoin. We are concerned about the rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.
Cryptocurrency is a good idea on many levels and we believe it has a promising future, but this cannot come at a great cost to the environment.
Tesla will not be selling any Bitcoin and we intend to use it for transactions as soon as mining transitions to more sustainable energy. We are also looking at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction.”
On Tuesday, China Banned banks and financial institutions from providing services related to crypto. This Ban supported their own digital Yuan, e-CNY.
Tether, the provider of USDT a stablecoin claimed as backed by USD in 1:1 is also indirectly responsible. For a quite long time, people are questioning tether’s claim. On 13th May, Tether released a breakdown of its reserves. As per its report, their cash and cash equivalent holdings were 75.85%, and the rest in other investments. In its holdings, cash money was at 3.87% only, this created an adverse effect in investor’s minds. In the cryptocurrency market, Tether has a maximum volume with an average of $3B. It is undeniable that people fearing to use the most used asset in the crypto-ecosystem will not affect the market.
How ON-Chain matrices define this drop?
The numbers of entities that are currently in profit provide the cross-section of the market that is underwater.
We can observe that this correction has led to over 23% of on-chain entities (unique, separate wallets) being at a loss, which compares to only three up-trending periods since 2016. Note that globally extreme events were responsible for all of these comparative pullbacks :
- 2016 first pullback of the disbelief rally, off the bottom, following 2yr bear market
- 2019 first pullback of the disbelief rally out of a 1.5yr bear market, driven mostly by leveraged short sellers being squeezed
- 2020 Consolidation following global uncertainty after the 12-March COVID sell-off
IN a post-Monday, Glassnode, citing several key blockchain data metrics, said that new investors who are selling in a panic have led the market correction. The “short-term holder SOPR,” or STH-SOPR that filters for coins younger than 155 days, dropped well below the key threshold of 1, meaning that newer market entrants appear to have “panic-sold” and realized “significant” losses on their investments, according to the Glassnode.
Observe the cyclical pattern of total supply held by short-term holders (STH), it appears that a pattern of panic selling played out, similar to, that observed at the macro peak of 2017. This makes a drop of around 30% in Bitcoin a normal playout.
Effects of Panic Sell By Week Hands
Following the panic sell, liquidation of longs started. In just an hour, the whole market crashed. As it reached below 50%, it bounced back 20%. The financial institution started buying the dip. Justin Sun, the creator of Tron, bought 4145 BTC and 54,153 ETH. In addition, Elon musk supported cryptocurrency by tweeting that tesla has diamond hands. Other Long terms Bitcoin HODLers are also suggesting people buy the dip.
In a period of two weeks, leverage liquidation dissolved $1 billion in bitcoin from the market. Future open interest fell from $27B at ATH to $12B. Thus, for spot buyers, this is nothing but a huge opportunity to buy as the macro landscape of BITCOIN still remains the same.
The S/F ratio of Bitcoin values it at $100,000, due to the scarcity of bitcoin. Bitcoin’s price has historically followed the S/F Ratio and therefore it is a model that can be used to predict future Bitcoin valuations.
This is not the End of Bitcoin; it has still a lot of potentials. It has reached a market cap of 1trillion dollars a lot faster than industrial giants like Apple and Microsoft who took more than 40 years. Even Amazon and Google took 20 years to achieve this level of success. Bitcoin is not just a currency, it is the world’s entry point for a cryptographically secured network working on a global scale flawlessly.
Also Read: Crypto Market Manipulation, & How Does It Affect Investors?
