Bitcoin rides a roller coaster again, flash crashes hundreds of thousands of retail investors

The Ark that saves mankind (ARK Fund) and Tesla CEO Musk who wants to go to heaven seem to have discovered a way to get rid of the gravity of the earth by financial means.

From the illusion of rushing to “100,000 US dollars” to the explosion of hundreds of thousands of leveraged retail investors overnight, the Bitcoin market has experienced a roller coaster this week.

Earlier this week, a single-day drop of more than 20% caused Bitcoin speculators to liquidate their positions. According to statistics from Bitcoin Homes, 340,000 people have liquidated their positions in the past 24 hours, and the liquidated positions amounted to more than 20 billion yuan (6.4550, -0.0019, -0.03%). Bitcoin once hit a peak of nearly 58,000 US dollars, but on the 23rd, in the 16 hours of the European and American markets, it fell by 17%. After falling below 50,000 US dollars, the price kept dropping and tested the 45,000 US dollars mark. , Resulting in a large number of leveraged retail investors liquidation. As of 18:00 on February 25th, Beijing time, the price of a Bitcoin is 49,165 US dollars.

In the next step, the liquidity environment led by monetary and fiscal policies, changes in inflation expectations, the trend of institutional allocation, and the sentiment of retail investors will all be the key to determining the trend of Bitcoin, but the risk of increased leverage has soared. Yuan Yuwei, a senior global macro trader, told a reporter from China Business News: “When everyone is driven crazy by financial asset inflation, the Ark that saves mankind (ARK Fund) and Tesla CEO Musk who want to go to heaven seem to have discovered the use of financial means. The way to get rid of the gravity of the earth: ARK buys Tesla and Bitcoin, Tesla buys Bitcoin, and the herd (retail investors) buys ARK ETF, Tesla and Bitcoin, and the cycle is endless. This time the global central bank is madly releasing water and borrowing , The whole people are frantically grabbing dividends from the future, and no one dares to imagine the final outcome.”

The product of institutional increase and retail speculation

Since last year, the story of Bitcoin’s soaring has sounded quite pleasant-institutions have begun to intervene in holdings. But in fact, the speculative stories of retail investors adding leverage and liquidation are ignored under the liquidity feast.

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In March 2020, due to the new crown epidemic sweeping the world and causing a huge shock in the financial market, on the evening of March 12, Bitcoin plummeted by nearly 50%, from nearly 10,000 US dollars to a direct minimum of 3,800 US dollars. At that time, there was even a saying that Bitcoin may be Zero.

In the following two months, Bitcoin rebounded to approximately $6,000. Since then, Bitcoin has climbed like crazy.

When Bitcoin broke through $10,000 from the beginning of October 2020, it can be observed that there are signs of institutions starting to enter the market. For example, on October 8th of the same year, mobile payment giant Square suddenly announced an investment of US$50 million in Bitcoin; on October 13, the asset management company Stone Ridge Holdings, which manages more than US$10 billion in assets, revealed that the The company purchased more than 10,000 bitcoins, worth about 114 million U.S. dollars; on October 22, the world’s largest cross-border payment platform PayPal announced that it would allow users to buy, sell, and hold cryptocurrencies on the platform; on October 27, Singapore’s largest commercial bank DBS Bank announced that it will provide encrypted digital currency transactions.

During this period, the Grayscale Fund was the main driving force behind the scenes. The Grayscale Bitcoin Fund (GBTC) gave institutions a compliant and convenient Bitcoin purchase channel. In this context, “Bull Queen” Wood is also a key figure. Wood’s ARK Fund invests heavily in Bitcoin, and the specific operation is to participate in Bitcoin investment by purchasing GBTC. Although the ARK Fund cannot directly hold cryptocurrencies, Sister Wood began to buy shares in Bitcoin Investment Trust (GBTC) when the Bitcoin transaction price was below $250 in 2015. ARK’s two funds, ARKK and ARKW, had positions in Bitcoin at 6%-10% at the time, and in the last 3 months and even last week, ARKW has been increasing GBTC.

At present, ARKW holds 5.2243% of GBTC, and the holding market value reaches 499 million US dollars. This week, during the gradual rise of GBTC, ARKW has also been increasing its position, totaling 479,700 shares. As of February 25, GBTC’s Bitcoin holdings were 655,600 and the holding value was 32.283 billion U.S. dollars.

On the surface, it looks like an institution, but the speculative sentiment of retail investors is also the key. Not to mention the retail investors who directly speculate on the blockchain asset exchange, the retail holdings of several ETFs under ARK almost exceed 80%. The recent plunge has caused hundreds of thousands of leveraged retail investors to liquidate their positions, and such stories have been common in the past year. “I cashed out Bitcoin today and bought a few lots of Moutai to hedge against risks.” A Bitcoin miner told reporters earlier this week. This undoubtedly reflects the enthusiasm of the entire market.

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Several major factors of flash crash determine the follow-up trend

As of now, Bitcoin has not recovered its vitality and continues to climb around $50,000. There are several major factors that cannot be ignored in the future.

First of all, the main driver of this flash crash is the rise in inflation expectations. Li Lianxuan, chief researcher of Ouke Yunchain Research Institute, told China Business News that with the rapid advancement of vaccines around the world, expectations for global economic recovery have heated up, which has pushed up inflation expectations. The market has introduced easing policies to major central banks in the world and reduced liquidity Concerns are increasing, which is why the major global stock markets and digital currency markets have adjusted recently.

At the same time, the previous period of encrypted assets rose sharply, accumulating callback pressure. The main driving force of Bitcoin’s rise during this period was Musk’s continuous “calling orders” on Twitter, which in turn led to the influx of funds and quickly pushed the price of Bitcoin to $58,000 in the short term. The excessively high price of Bitcoin and the large increase have made the market more sensitive to Bitcoin price risks. Some funds have been withdrawn from profit, and the profit is taken in a timely manner to avoid risks, causing the market to pull back. In the future, the configuration of ARK ETF itself and retail redemption will dominate the trend of Bitcoin.

In addition, the story of institutional allocation sounds beautiful, but investors must not ignore its negative effects. According to ARK’s research, if all companies in the S&P 500 allocate 1% of their assets to Bitcoin, the price of Bitcoin will increase by about $40,000. However, Li Lianxuan told reporters that this will also make Bitcoin more and more susceptible to external markets. Recently, major global financial markets have shifted from continuous rises to adjustments. Investors will also adjust the allocation of Bitcoin in order to maintain liquidity or avoid risks, which has caused the price of Bitcoin to fall.

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Recently, Canadian regulators approved the first ETF that tracks Bitcoin in North America and started trading on the Toronto Stock Exchange. The trading volume exceeded 9.65 million on that day, and the US Securities Regulatory Commission may also follow. It seems to be good news, but its negative effects may also be amplified during the plunge. In contrast, GBTC does not have a redemption mechanism and requires lock-up after subscription, which indirectly pushes up the price of Bitcoin. But in traditional ETF fund transactions, T+0 transactions can be realized between the primary and secondary markets. However, the current primary market subscription share of GBTC will not be available for sale on the secondary market until 6 months later. Therefore, it can be said that the launch of Bitcoin ETF will help increase investor enthusiasm and convenience in trading, but it will also increase selling pressure to some extent.

Finally, the duration of the liquidity feast directly determines the future of Bitcoin. Although the Fed is currently expressing its patience, once the market’s inflation expectations rise again, the story of “explosion” will surely emerge again.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.