In this article we review some of the potential reasons that might help to explain the sudden and rather drastic sell-off the crypto markets endured yesterday.

The price of BTC lost over $1k in the span of half an hour yesterday. Source: bitcoinity.org

 

Bloody Day for Crypto Markets as Most Coins Suffer Double-Digit Losses

 

The cryptocurrency market shed $30 billion in a matter of hours yesterday, with the total market cap of all coins plunging from $248 billion to $218 billion overnight. In the last 24 hours, Bitcoin (BTC) is down 14%, briefly dipping below $8,000 a coin for the first time since June. Ethereum (ETH) is down 15%, Ripple (XRP) is down 11%, and Bitcoin Cash (BCH) is down 24%, making it one of the most brutal days the markets have seen thus far in 2019. Out of the top 20 coins (excluding stablecoins like USDT), the biggest loser was Bitcoin SV (BSV), which was at one point down a staggering 32%, before climbing its way back up to its current 26% loss. Only one such coin managed less than a 10% drop, which was the Bitfinex token Unus Sed Leo (LEO).

For the last 3 months, the price of BTC had managed to trade sideways above $10k, making for a relatively boring summer for price watchers. Unfortunately, the trend broke in an unfavorable direction on a moment’s notice yesterday. The downward lurch comes on the heels of a few major news items, a confluence of which are likely to blame for the day’s losses. In the remainder of this article we will review some recent events that perhaps contributed to this most recent downfall in crypto prices.

Bakkt Futures Trading Launches

Covered extensively in previous articles on Coin Clarity, the launch of digital asset custodians Bakkt was supposed to be a catalyst for bitcoin prices as it opened the doors to new buying opportunities for institutional investors. However, activity was pretty miniscule on opening day, with volume totaling only about 1/75th of that conducted by the other bitcoin futures market, CME. So why is Bakkt a contender in the list of reasons for BTC’s sudden decline? A decent conspiracy theory goes something along the lines of the surrounding market being manipulated so that Bakkt futures traders can actually get in on some excellent buying opportunities now, leading to large returns in the near future. If this theory was to be correct, it would mean that prices are due to jump back up into the $10k+ range in the near future, and potentially much higher if Wall Street finds Bakkt’s contract options to be profitable.

Donald Trump Faces Impeachment Inquiry

Though Donald Trump is clearly not a fan of bitcoin himself (thanks to some famous anti-bitcoin tweets he made earlier this year), another potential reason behind BTC’s sell-off was the announcement by Speaker of the House Nancy Pelosi that a formal inquiry into the impeachment of Trump was underway, which caused the American stock markets to slide approximately 1% across the trading day. This movement also coincided with the drop in the crypto markets, though it was much more exaggerated there. A rationale behind this could be that bitcoin is seen as a high-risk investment, so when Wall Street is gripped by fear and uncertainty (as was introduced by the announcement of the impeachment inquiry), it tends to sell off the higher risk type asset categories first. Its volatile nature and shaky underpinnings make it among the most high risk investments, only surpassed by altcoins, which are pretty much the riskiest readily-available investments in the world.

Several BitMEX Long Positions Liquidated

If either one (or both) of the aforementioned scenarios caused the price of BTC to dip even just a little bit, it is quite possible that exchange giant BitMEX played a role in exacerbating the losses. A wave of long position liquidations, triggered by a sudden and unexpected shift in BTC’s price, was followed by a $1000 drop less than a half an hour later. Basically, a small downtick forced several highly-leveraged traders to close their positions due to margin calls, which drove the price down even more, in turn causing hundreds of other traders to liquidate their positions. BitMEX famously offers leveraged trading (short or long) up to 100x, meaning they will lend a trader $100 for every $1 they put into a leveraged trade. BitMEX therefore provides the BTC market with a lot of liquidity, but this can be a double-edged sword, as was witnessed yesterday.

Spikes in BitMEX leveraged position liquidations. Source: DataMish

 

A lot of the time, it isn’t a single factor that contributes to a rapid decline in any market, but a confluence of events, where sometimes one event is triggered by the preceding event. This is still by no means the end of a bullish era for bitcoin and crypto in general. To put things in a positive perspective, the price of BTC is still up 124% in 2019, making it still all-in-all a very bullish year for the cryptocurrency, in spite of the recent drop.­

As of the publishing of this article, BTC had regained some of its earlier losses, stuck in a range of $8250 and $8450.