What Sparked the Bitcoin Crash?

Rumors of SpaceX offloading its Bitcoin, the collapse of a major Chinese real estate firm, and concerns about impending interest rate hikes are among the speculated reasons for the sudden decrease in Bitcoin’s value.

On the evening of Aug. 18, Bitcoin’s price took a nosedive, dropping by over 8% in just 10 minutes. This abrupt decline affected the entire cryptocurrency landscape, leaving many industry experts and enthusiasts bewildered.

Josh Gilbert, an eToro market expert, linked the drop to a recent article from The Wall Street Journal, which speculated that SpaceX might have sold a considerable portion or even its entire Bitcoin assets valued at approximately $373 million. Gilbert emphasized, “Big industry names, like Elon Musk, selling Bitcoin can have a significant impact on its value.”

This notable price dip occurred roughly 2.5 hours post the article’s online publication. Gilbert also brought up another potential reason: the market’s anticipation of forthcoming interest rate hikes by the U.S. Federal Reserve. He stated that these expectations, coupled with Bitcoin’s recent stagnant price movement, amplified the sell-off.

However, CMC Markets analyst Tina Teng offered a different perspective. She suggested the spike in government bond yields, which usually indicates a liquidity decrease in broader markets, could be the main reason for the cryptocurrency downturn. While acknowledging the potential effects of the Evergrande situation on Bitcoin, she believed it primarily influenced perceptions of the Chinese economy and its investors.

In contrast, Markus Thielen from Matrixport cited concerns over a possible Chinese Yuan devaluation as a key factor in the sell-off. He recalled the significant drop in Bitcoin’s value following China’s Yuan devaluation in 2015.

Another theory emerged from TheFlowHorse, an anonymous derivatives trader. The trader proposed that the decline might have been initiated by a significant entity executing a large sale, leading to added stress on derivatives. He mentioned, “The volume of direct trades was minimal compared to futures.” Data from Coinglass revealed that Bitcoin long positions worth over $427 million were liquidated in the subsequent four hours.

TheFlowHorse deemed most explanations as speculative and hypothesized that a large entity might have sold off their Bitcoin to capitalize on an Ethereum Futures ETF after its potential approval by the SEC was announced.

I have a different theory; I believe that markets tend to move because they need to, and the news only serves as an “excuse” after the fact. We’ve been discussing the need for 1) Bitcoin in particular to put in a major monthly “higher low,” in conjunction with the fact that 2) the BTC market could not sustain a breakout. It only made sense that the price was going to have to drop in the near future. 

Now things get interesting!