Only invisible risks are called risks!
The virtual currency market in recent days can be said to have caught people off guard. If yesterday's market was a light breeze and light rain, then today's market is a stormy one. Today, Bitcoin plummeted by over 8%, while major currencies such as Ethereum experienced declines of over 10%. Over the past 24 hours, over 230000 people have sold out, resulting in losses exceeding $680 million.
It is worth noting that the stock market, led by the US stock market, is constantly reaching new historical highs. So, what is the reason that separates virtual currency from the stock market? Is this a ebb of risk aversion or a precursor to the arrival of the black swan?
Analysts believe that the recent drop in virtual currency may be related to geopolitical elections; Secondly, it may be related to supply. The operators of power consuming computers that support the Bitcoin blockchain are continuing to bear the financial blow of the so-called halving in April, which limits the new tokens they can obtain through work. One of the measures taken by these Bitcoin miners is to sell some token inventory. In addition, the demand for Bitcoin exchange traded funds in the United States has weakened, and the government is disposing of seized tokens.
Overall sharp decline
Bitcoin has fallen for the fourth consecutive trading day, reaching its lowest level since February on Friday and is expected to achieve its worst weekly performance in a year. Small currencies such as Ethereum, XRP, and Cardano have experienced greater declines, with most of them exceeding 10%.
In the past 24 hours, a total of 234880 people have been liquidated, with a total amount of 682 million US dollars. The largest single liquidation occurred in Binance ETHUSDT, valued at $18.4832 million.
Some analysts believe that Bitcoin's continuous decline may be due to the tumultuous US election and signs that the tokens seized by the German government have been transferred to exchanges. Global market investors are playing a game in the US election, and US President Biden may succumb to pressure from within the party and political donors and withdraw from the re-election campaign. This would give rise to another possibility: a new and stronger competitor for the Democratic Party. Although Trump previously claimed to support cryptocurrencies, emerging Democratic competitors may not support them.
In addition, Richard Galvin, co-founder of hedge fund Digital Asset Capital Management, stated that the greater reason for Bitcoin's weakness in the short term is the unresolved compensation issues of Mt. Gox (Mentougou) and government selling. Recently, traders have been weighing the risks of US and German governments disposing of seized Bitcoin. According to data from Arkham Intelligence, a wallet related to Germany transferred approximately $75 million worth of tokens to the exchange on Thursday, the latest in a series of transfers.
Coinglass data shows that over the past three days, bullish bets on cryptocurrencies worth over $800 million have been liquidated, making it one of the largest liquidations since April.
Caroline Mauron, co-founder of Orbit Markets, a liquidity provider for digital asset derivatives, said that weekend liquidity differentials will exacerbate any volatility caused by liquidation, even on a small scale. The return of US investors after the holiday on July 4th may help bring some stability.
Virtual coin ecosystem changes
In fact, signs have already emerged yesterday, with sellers testing their waters below the 200 day moving average (blue line). This is the main reason for today's breakthrough from the May low point and the sustained momentum. And the deeper reason behind it may still be the changes in the virtual currency ecosystem.
The recent halving of mining rewards (also known as "halving") has plunged Bitcoin miners into a financial abyss. Since this incident, the income of miners has decreased by 63%, from $79 million per day to only $29 million. The blockchain analysis platform CryptoQuant has observed signs of many miners surrendering. The most notable feature is that the hash rate has decreased by 7.7% since halving, indicating that it is becoming increasingly difficult for miners to maintain their activities. Smart investors often see the surrender of Bitcoin miners as a buying signal. In fact, when miners are forced to sell their Bitcoin to make up for costs, this creates even greater downward pressure on the price of Bitcoin than imagined.
CryptoQuant's data shows that miners are accelerating the sale of their Bitcoin reserves. The daily BTC outflow from miners' wallets has reached its highest level since May, indicating a large-scale sell-off. This phenomenon can be interpreted as a sign that miners are in despair due to declining income, preferring to liquidate assets rather than continue operating at a loss.
The trading director of Auros, a market making and algorithmic trading company, has stated that the range of $51000 to $52000 is crucial as many Bitcoin miners are reaching the breakeven point of mining.
In addition, yesterday securities firm China reported that Binance, the world's largest cryptocurrency exchange, suddenly plans to stop trading services for the following six currency pairs: BTC/AEUR ETH/AEUR、AI/TUSD、CHR/BNB、GAS/FDUSD、LQTY/FDUSD， The revision will take effect on July 5th. The company did not disclose the specific reason for delisting, but only reminded that it will regularly review all listed spot trading pairs and delete some trading pairs in the event of poor liquidity or other factors. And this approach has previously led to a sharp drop in the relevant currencies.
The most noteworthy thing is that currently, with the previous decline in gold and the recent sell-off of virtual currencies, only MSCI's global stock index is hovering near historical highs in most of the world's assets, and the short-term (30 day) correlation between Bitcoin and the index is decreasing. So, here comes the problem. Is the risk aversion of virtual currency an isolated phenomenon, or does it indicate that all mainstream investments will enter a period of intense volatility?