As the market recovers from Bitcoin’s sudden dip below $25,000, James Butterfill, head of research at CoinShares, has weighed in on the potential underpinnings of this decline. Drawing from a meticulous analysis of market factors, Butterfill’s insights provide a more granular understanding beyond the initial speculations linking the crash to SpaceX’s financial moves.
Butterfill tweeted an astute analysis, offering a multi-faceted perspective: “Our thoughts on what’s behind the recent Bitcoin price crash,” beginning with an emphasis on the market’s recalibrated expectations concerning SEC’s stance on the approval of a spot ETF. He stated that the crash was probably “prompted by the market realizing that the SEC approval of a Bitcoin ETF in the US isn’t imminent.”
Reasons For The Bitcoin Price Crash
Adding another layer of complexity, Butterfill pointed to global macroeconomic factors, particularly in Asia. He observed, “Fears over the economic downturn in China gathering pace as deflation sets in, although this could ultimately be supportive for Bitcoin if the financial sector is significantly affected.” With China being an economic powerhouse, its fiscal health inevitably reverberates across global markets, including the Bitcoin and crypto sector.
Further dissecting BTC’s price move, Butterfill pointed to an apparent liquidity crunch: “Bitcoin volumes have been very low, $2.3 billion per day compared to $11 billion per day at the beginning of this year, so markets are much more sensitive to larger trades.”
Adding another dimension to the analysis, he highlighted BTC’s historical price behavior: “Bitcoin matching its lowest 30 day volatility on record, this has historically preceded violent price moves.”
While the market had been abuzz with SpaceX’s recent $373 million BTC write-down, Butterfill underscored it as yet another contributing factor. However, the larger macroeconomic context is vital. He elucidated, “30 year rates hit their highest level in 20 years, Bitcoin has often been the first to act in recent years, so this may be preceding a broader crash in other asset classes.”
In conclusion, it can be said that CoinShares’ detailed breakdown underscores the multifaceted nature of BTC’s price movements. While singular events, like SpaceX’s financial disclosures, capture headlines, they are but pieces in a complex puzzle that spans regulatory decisions, global economic health, and market liquidity.
Probably a mixture of all factors led to the largest cascade of futures liquidations since the implosion of FTX. With BTC long liquidations totaling $386.68 million yesterday, the price decline was certainly led by the futures market. But the reasons for this are complex.
Investors should also keep in mind that the Wall Street Journal report is not confirmed, talks about write-offs of BTC while the amount of BTC sold is unclear. Moreover, it is very likely that SpaceX has already sold its BTC in a distributed manner in the past.
A crash of the current scale could therefore have been a panic reaction. This is also shown by the RSI on the daily chart of Bitcoin, which at 20.5 is even lower than during the FTX crash in November 2022 (RSI fell to 24.6).
At press time, BTC traded at $26,483.
Featured image from iStock, chart from TradingView.com