Cryptocurrency crashed and plunged. Excessive leverage may be the main cause

The popularity of Coinbase’s listing has not yet retreated, but the cryptocurrency market ushered in an unexpected slump over the weekend. Interviewees believe that excessive market leverage is the main reason for the violent volatility of the cryptocurrency market. In addition, the uncertainty of national regulatory policies also brings risks to the crypto market.

At around 11:30 on April 18th, Beijing time, the price of Bitcoin, which was hovering around US$60,000, suddenly turned down. It once fell to around US$52,000, a drop of more than 15% in the day. As of the press release at 20:00, the price of Bitcoin fell back to around $53,000 after experiencing a rebound. Ethereum fell from around US$2,400 to around US$2,000, falling more than 10% in the past 24 hours.

Last week, with the listing of Coinbase, the cryptocurrency market as a whole rose sharply. On April 14, the price of Bitcoin hit a maximum of $65,747, a record high. Ether also rushed to above 2500 US dollars during the same period, also setting a new historical record.

Why did the price of the cryptocurrency market, which just hit a record high, experience a sharp drop? Interviewees believe that the current excessive leverage in the market is the main reason.

An analyst from PayPal Finance, an encryption financial service agency, who asked not to be named, told reporters that the agency’s statistics on the inter-agency lending rate of cryptocurrency showed that since the end of 2020, as the price of Bitcoin continues to hit new highs, the lending rate has also The rapid rise, and February this year is close to the level of Bitcoin’s crash in March 2020, indicating that the market leverage ratio is at a high level.

“On April 13, the basis on the market was as high as 50%, and the funding rate was as high as 150%. Once the price of Bitcoin fell, it would easily lead to continuous liquidation and plummeting.” The analyst said.

Gu Yanxi, founder of Liyan Consulting, holds a similar view. He told reporters that the current bitcoin price is mainly determined by derivatives, and once the derivatives fluctuate, it will cause more substantial fluctuations in the bottom layer, that is, the price of bitcoin. Therefore, Bitcoin’s recent rise and fall have been very fast, both of which are the result of leverage.

According to market sources, the massive sell-off of shares by Coinbase insiders has also triggered market sentiment fluctuations. Statistics from the US data analysis website GuruFocus show that after Coinbase went public, its insiders sold 12.965 million shares. Based on Coinbase’s price of $344.38 per share at the close of trading on Friday, it is worth more than $4.6 billion.

Among them, Coinbase CEO Brian Armstrong sold nearly 750,000 shares for a total of approximately US$292 million. Coinbase Chief Financial Officer Alesia Haas sold 255,600 shares at a price of US$388.73, for a total of approximately US$99.32 million.

In this regard, Wan Hui, the founding partner of the original venture capital, commented on his personal Weibo that “cashing out” must occur because Coinbase is directly listed, and only existing shareholders can sell to have the initial supply, otherwise Initially, there was no liquidity, and no market making was possible.

The slump in the price of Bitcoin also made it into the hot search list of Weibo that day, and investors once again felt the stimulus of the cryptocurrency market. According to the statistics of Bitcoin Homes as of 20 o’clock on the 18th, nearly 472,000 people liquidated their positions in the previous 24 hours, and the liquidated positions amounted to more than 6.2 billion US dollars. Among them, the largest liquidation order occurred on Huobi-BTC, valued at US$46.94 million.

Currently, cryptocurrencies are still facing regulatory uncertainty. The Central Bank of Turkey decided last week to ban the use of crypto assets in payments. The central bank stated that encrypted assets are neither subject to any regulatory and supervisory mechanisms, nor are they subject to the supervision of central regulatory agencies, their market value may fluctuate excessively, and they may also be used for illegal activities.

Fed Chairman Powell said on Wednesday that cryptocurrency is a speculative tool. Previously, India proposed to ban cryptocurrencies and impose fines on those who trade or hold assets.

Encrypted asset angel fund Wuwei investment partner Ma Tianyuan told reporters that strengthening supervision will help squeeze out speculation in the cryptocurrency market in the short term, and will also benefit the legal and compliant development of cryptocurrencies in the long run.