Bitcoin and cryptocurrency prices have fallen sharply over the last month, with the combined cryptocurrency market losing around $1 trillion in value.
The bitcoin price dropped from over $60,000 per bitcoin to under $35,000 from mid-April through to mid-May. Ethereum, the second-largest cryptocurrency by value after bitcoin, lost half its value in just two weeks as its price tanked in the aftermath of the bitcoin sell-off while ethereum rivals cardano and Binance’s BNB also crashed.
Now, traders and analysts have been dissecting the bitcoin and crypto price crash, with both Tesla billionaire Elon Musk’s fickle tweets and fears over a China crypto crackdown apparently playing a smaller role in the sell-off than first thought.
“I think really just what happened last week was similar to what you’ve seen before, where the futures market and the swaps market was pretty levered up,” Roshun Patel, the vice president of lending at the bitcoin and cryptocurrency prime brokerage Genesis, told Bloomberg’s Odd Lots podcast.
“A lot of the positioning was skewed down the risk curve in more volatile assets,” said Patel, pointing to bitcoin’s relative stability at just under $60,000 since early March as giving an expectation that so-called altcoins including ethereum, Binance’s BNB and cardano “will kind of rally.”
“And pretty much the exact opposite happened, which was spot bitcoin started selling off in a significant way [and] it kind of just felt like it kept going and the pressure for the spot selling just sort of continued. When that happens the liquidations can get pretty wild on alts and they kind of cascade,” said Patel, adding: “Last week was probably the most brutal I’ve ever seen in the last five years, even crazier than March .”
In March last year, the bitcoin and cryptocurrency market crashed around 50% in just a couple of days along with stock markets around the world as the pandemic shut down countries and economies before markets broadly rebounded over the next few months.
Last month, the wind was taken out of the bitcoin and cryptocurrency market by Tesla chief executive Elon Musk scaling back the company’s plans for bitcoin adoption and fears China could be about to crack down hard on those that create and trade bitcoin in the country, however, Patel is wary of naming any one particular thing as sparking the crash.
“You could point to like a specific headline or a specific narrative or specific theme that could be the cause of it,” said Patel. “But it’s really hard to say if that was the ultimate reason why the market sold off. At the end of the day, the crypto market is really just a spot order book and a derivatives order book.”
The bitcoin and cryptocurrency derivatives market has exploded over the last couple of years as crypto exchanges give traders the ability to bet on the future price of bitcoin, offering the use of borrowed funds to “leverage” trading positions.
Meanwhile, theories that so-called “whales,” individuals who control large amounts of one cryptocurrency or another, are manipulating the price of bitcoin and other tokens have continued to swirl.
“[There are] so many people DMing me asking about whales manipulation of price downwards,” says market veteran and author of The Crypto Trader Glen Goodman, speaking via Twitter DM.
The theory, according to Goodman, goes whales “might try to push [bitcoin and crypto prices] down so they can buy more, but sometimes they just want to sell. A lot. For years. Like in 2018-19.”
After bitcoin’s huge 2017 rally to around $20,000 per bitcoin, crypto prices entered a multi-year bear market that saw the bitcoin price fall to around $3,000 in late 2018.
“This current obsession with Wyckoff accumulation/distribution doesn’t really tell us anything more than the naked eye can see by looking at the chart,” says Goodman, warning there could be another “wave of selling” on the way.
“[The bitcoin price] was rising for months due to strong buying, then it went sideways for three months as some holders start selling to new buyers, then the supply of new buyers start to dry up so the price falls. It’s pure speculation for people to now call this another ‘accumulation phase.’ It could just as easily be a pause before another wave of selling.”