Bitcoin suddenly plummeted: just for a moment

Written by: Qin Jin

Witnessed history again last night. Bitcoin sets new record in history.

On the evening of March 6, Beijing time, Bitcoin exceeded $69,080 in one fell swoop. Beating the previous record of $69,040 set in 2021. It triggered special attention from global investors and media. Including CNBC, Reuters, Wall Street Journal, New York Times and other world mainstream media have reported and commented on it.

But the good times did not last long. While Bitcoin broke through a new high, it immediately plummeted to the US$60,000 mark, plummeting 10.7% in a single day. According to CoinGlass data, more than 300,000 traders have been liquidated in the past 24 hours, with a total liquidation of $1.19 billion. Among them, long positions were liquidated at US$878 million and short positions were liquidated at US$310 million. The so-called surges and plummets often only occur in an instant.Before Bitcoin reached all-time highs, its market capitalization surpassed that of silver, reaching over $1.3 trillion. Ranked eighth in the world. Overall, over the past year, Bitcoin’s gains have been far greater than its losses. As of now, Bitcoin has increased by nearly 50% in only the first 3 months of 2024. Since hitting a low of about $16,500 in December 2022, it has recovered more than 300% in more than a year.

There are many reasons behind the surge and crash of Bitcoin. For example, the reasons for the surge include: Bitcoin ETF, interest rate cut expectations, halving cycle, surge in U.S. debt, reappearance of inflation, etc. However, the Bitcoin spot ETF is certainly one of the most important reasons. According to a report by the Wall Street Journal on March 5, since the launch of Bitcoin spot ETF funds on January 11, investors have poured into these funds at a record rate. The total assets of the 10 Bitcoin spot ETFs in the market have surged to nearly $50 billion.

Assets of BlackRock's iShares Bitcoin Trust fund topped $10 billion last Thursday, the fastest new ETF ever to reach the milestone. Fidelity's such fund, which now has more than $6 billion in assets, is already the asset manager's third-largest ETF and accounts for the majority of its net ETF inflows this year. Todd Rosenbluth, director of research at VettaFi, said it's a sustained wave of demand. These products performed strongly upon launch and have continued to do so. These funds allow retail investors to purchase the digital asset through a brokerage account without having to go to a cryptocurrency exchange, or through funds that track the price of Bitcoin with futures contracts.

According to CryptoQuant analyst Bradley Park, the reason for Bitcoin’s plunge has a lot to do with miners selling. Taking into account exchange order books, he said, there is liquidity of 5-10 Bitcoins for every $100 price change. A sell-off of 1,000 Bitcoins would most likely trigger a significant price drop. Especially like Tuesday, traders are waiting to short Bitcoin.Will Clemente, co-founder of Reflexivity Research, noted that Tuesday’s plunge reminded him of Bitcoin’s moves around Thanksgiving 2020. At the time, bulls were eyeing an imminent break above the $20,000 mark, but Bitcoin quickly collapsed after hitting $19,500, falling to around $16,000 in a short period of time. Clemente said on social media

In the past six months, in the eyes of Wall Street institutions and even global retail investors, Bitcoin has become more than just a popular alternative new asset class that can bring them huge investment returns. It may also be a new type of asset class that has never been seen before. Emerging scarcity finance phenomena encountered. Behind this scarcity phenomenon, everyone may not help but wonder, where is the high point of Bitcoin’s price? What impact will the Bitcoin phenomenon have on the future global financial market, economic order and even national governance? However, it is undeniable that the financial scarcity phenomenon created by Bitcoin will continue to exist for a long time to come.

Fortune wrote on March 5 that Bitcoin’s popularity will only grow in the coming years. The reason is simple, companies like BlackRock and Fidelity are incorporating Bitcoin into the portfolios of millions of investors, directly or indirectly. Like other investors, these new Bitcoin holders will likely put aside any philosophical objections they may have and just hope that Bitcoin prices rise.

In order to facilitate readers to learn more about the historical high created by Bitcoin, two compiled articles on the value of carbon chain are selected for your reference. One is from coindesk and the other is from CNBC.

Bitcoin surges to new all-time high, topping $69,000

The success of a Bitcoin spot ETF that opened on January 11 was the catalyst for the world’s largest cryptocurrency’s latest bull run.

Bitcoin prices hit a new all-time high, rising above $69,000 on cryptocurrency exchange Coinbase, a level first touched on November 10, 2021.The massive buying wave triggered by the newly launched Bitcoin spot ETF in the United States is likely to be a significant catalyst behind Bitcoin’s historic rise. When the ETF opened on January 11, Bitcoin was trading around $45,000. After a brief “sell news” dip into the $39,000 range, Bitcoin quickly rebounded to over $50,000 in mid-February. After hovering around $51,000 for several weeks, Bitcoin prices rose again at the end of the month.

Mike Novogratz, an early Bitcoin holder and CEO of Galaxy Digital, posted on X on February 28 that it is difficult to predict where we will stop. At that time, Bitcoin’s highest record was just around the corner. Bitcoin is in a price discovery phase. Perhaps indeed for the first time since Bitcoin became an asset, most of the wealth in the United States is now easily accessible. Galaxy previously launched a Bitcoin ETF in partnership with asset management giant Invesco and is currently one of 10 issuers of U.S. spot ETFs.Hunter Horsley, CEO of Bitwise, another issuer of spot ETFs, said that things have just begun, and that Bitcoin is approaching $250,000 at a speed that even bulls cannot imagine.

The third round of bull market

Market observers say Bitcoin is the world's largest digital asset, with a current market capitalization of more than $1 trillion. In mid-2023, BlackRock, the world's largest asset management company, began to apply for the listing of a Bitcoin spot ETF, and Bitcoin entered a bull market.

This would mark Bitcoin’s third bull run, driven by the market’s acceptance of Bitcoin as an institutional-grade asset class via ETFs, as well as macroeconomic factors also working in Bitcoin’s favor.Nansen analyst Aurelie Barthere believes that the slowdown and end of the Fed's interest rate hikes is also likely to prompt BTC to bottom in 2022 and rebound after November 2023, with technology stocks also hitting new highs on the artificial intelligence narrative. Barthere wrote that the prospect of Bitcoin’s “halving” is seen as a “tailwind” for cryptocurrency prices, and historical data shows that returns before and after the “halving” are extremely high.

"The overall strong performance of risk assets such as cryptocurrencies, equities, and credit tells us that funding conditions may have eased, especially since November and the interest rate peak," Barthere wrote. Investors are also genuinely optimistic about the macro outlook (recession is no longer the consensus), and risk premiums related to uncertainty about potential growth shocks have fallen.Analysts also noted that the late-2023 rally was marked by illiquidity, with FalconX director of research David Lawant writing in October 2023 that a lack of sellers willing to sell was a factor driving prices higher.

Bitcoin’s second bull run looks a little different

Bitcoin’s big surge in 2020-2021 is driven by COVID-era monetary policy, major regulatory changes that allowed institutions to embrace Bitcoin, the maturation of Ethereum (which allowed DeFi to take off), and record venture capital investment in the space. It rose for part of the time, eventually reaching an all-time high of $69,045 at the time. However, record inflation and subsequent interest rate hikes by the Federal Reserve pushed cryptocurrency prices lower for the first time in the first quarter of 2022. However, this is just a preview of the “year of horror” for digital assets. The Year of Horror began with the collapse of Do Kwon's Luna, followed by the collapse of Celsius and Three Arrows Capital, and finally the collapse of FTX, led by SBF.Finally, Bitcoin rebounds for the first time

2022 is undoubtedly an exciting year, but in terms of the cryptocurrency rollercoaster, 2017 might just be a runner-up. Bitcoin started the year at just over $900 and ended the year just shy of $20,000. Along the way, the Chinese central bank took regulatory action, the U.S. Securities and Exchange Commission vetoed the Winklevoss ETF, and ultimately sparked an initial coin offering (ICO) bubble.

As subsequent history has shown, ICOs were largely scams and mostly fiction (although some of the most important cryptocurrency projects in existence today were also created during this era, but very few rare).

Selling pressure after the end of the ICO era pushed Bitcoin down more than 70% from its 2018 high and kicked off the 2018-2019 cryptocurrency bear market. Bitcoin slowly recovered after bottoming at $3,100 and continued to rise in 2020. It began to rebound after the COVID-19 stimulus policies were launched in March.

Bitcoin surges to new all-time high above $69,000, surpassing 2021 record

Bitcoin hit a new all-time high for the first time in more than two years, with this year’s rally accelerating on the back of Bitcoin ETFs and the upcoming halving event.

The cryptocurrency’s price topped $69,210 on Tuesday morning before pulling back, according to data from Coin Metrics. Last traded at $67,481. The flagship cryptocurrency hit a record high of $68,982.20 on November 10, 2021 -- almost a year after the catastrophic collapse of the once-famous FTX plunged the entire industry into its darkest hour.Alex Thorn, director of research at Galaxy Digital, said Bitcoin hitting another all-time high shows it is never going away. In the 15 years since its birth, Bitcoin has experienced four 75%+ corrections, only to rebound sharply each time.

Clara Medalie, head of research at cryptocurrency data provider Kaiko, echoed the sentiment, saying the new record is "an important psychological milestone" that demonstrates the cryptocurrency's extraordinary ability to rebound and continue to persevere despite significant headwinds.

“The higher the value of Bitcoin, the more useful it is,” Thorn added. The higher the market cap and daily circulation of Bitcoin, the more it can support larger allocations. Bitcoin’s volatility continues to decrease over time, allowing for larger position sizes.

Since early February, investors have been focusing on the key narrative themes behind the rise in Bitcoin prices.

Catalysts for the cryptocurrency's surge include a U.S. spot Bitcoin ETF that began trading earlier this year, as well as a tightening of Bitcoin supply ahead of the "halving" at the end of April. This event is intended to create a scarcity event around the asset. Bitcoin’s upward trend is accelerating this week.

The new record is a victory for an industry that has long suffered from reputational and regulatory risks, and just two years ago, when bankrupt crypto lenders dragged down cryptocurrency investors and cryptocurrency exchange FTX collapsed, it seemed that the entire industry 's darkest moment. In late 2022, just as traders were trying to gauge the possible impact of FTX, Bitcoin fell to its lowest point in two years. The cryptocurrency fell 64% that year and has been fighting to prove its legitimacy ever since.

Thorn said Bitcoin has always been underappreciated. He cited some opponents who have called Bitcoin a "bubble" and compared it to the "tulip mania" in the Netherlands in the 1600s. People have shown time and time again that they want a decentralized, programmatic, and scarce digital currency.

Needham analyst John Todaro said it could also signal the start of a new wave of retail investors re-engaging in the cryptocurrency market. He told CNBC, "Retail interest tends to be driven by momentum, and all-time highs are a key driver for more investment. Additionally, ironically, this may lead to more capital flows looking relatively Cheaper altcoins, he said.

Cryptocurrencies, led by Bitcoin, enjoyed a strong recovery in 2023, rising 157%. The digital asset was initially boosted by the regional banking crisis in the U.S. amid speculation that an ETF tracking the price of Bitcoin would gain approval from the U.S. Securities and Exchange Commission, giving it a tailwind.

Some investors remain skeptical about this young crypto asset class, how it is valued, or whether it has any intrinsic value. However, U.S. spot Bitcoin ETFs have given it legitimacy and popularity, with BlackRock’s iShares Bitcoin Trust (IBIT) surpassing $10 billion in assets under management last week.

However, with Bitcoin on fire, investors should be cautious entering this market as unrealized profit margins are approaching extreme levels.

Ed Tolson, founder and CEO of cryptocurrency hedge fund Kbit, said: The market is in the position of a sharp correction that could range from 10% to 20%. Any substantial decline will lead to continued liquidation in the cryptocurrency perpetual contract market, as retail investors have established leveraged long positions in these markets. This will make financing rates very high. Over the next few quarters, we expect BTC to perform well, but with a sharp correction on the way.

Oppenheimer's Owen Lau agrees.

He said: "The increase has been so large and so fast that we are cautious about a correction. But there are still catalysts supporting positive price action in the longer term.

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