Bitcoin's Sudden Plunge: A Temporary Event
Bitcoin set a new all-time record last night, surpassing $69,080 in one fell
swoop. The world's mainstream media have reported and commented on this achievement, which surpasses the previous record of $69,040 set in 2021. This detonated global investors and attracted extra media attention, including CNBC, Reuters, the Wall Street Journal, and the New York Times.
However, the period of prosperity was short-lived as Bitcoin quickly reached a new high before plummeting to the $60,000 mark, resulting in a one-day drop of 10.7%. According to CoinGlass data, over 300,000 traders lost their positions in the past 24 hours, amounting to $1.19 billion. Out of this, $878 million was lost on long positions and $310 million on short positions. It is worth noting that market fluctuations can occur in a matter of seconds.
Prior to reaching an all-time high in price, Bitcoin's market capitalization exceeded that of silver, surpassing $1.3 trillion and ranking eighth globally. Despite fluctuations, Bitcoin has experienced a net increase over the past year, rising by almost 50% in the first quarter of 2024 alone. Since its December 2022 low of approximately $16,500, it has rebounded by over 300% in just over a year.
There are several reasons for both the surge and crash of Bitcoin. Some of the reasons for the surge include the Bitcoin ETF, expectations of interest rate cuts, the halving cycle, the surge in US debt, and the resurgence of inflation. Among these reasons, the Bitcoin Spot ETF is considered to be one of the most significant. As per a report in the Wall Street Journal on March 5, investors have been rapidly investing in bitcoin spot ETF funds since their launch on Jan. 11. The total assets of the 10 bitcoin spot ETFs available in the market have surged to almost $50 billion.
Todd Rosenbluth stated, VettaFi's head of research, this is due to a continuing wave of demand. The funds were strong when they entered the market and have remained so. Retail investors can purchase the digital asset through a brokerage account without the need to go through a cryptocurrency exchange or a fund that tracks the price of bitcoin with futures contracts.
According to CryptoQuant analyst Bradley Park, Bitcoin's recent decline is largely due to miners selling off. According to the speaker, exchange orders indicate a liquidity of 5-10 bitcoins for every $100 price change. Therefore, a 1,000-bitcoin sell-off is highly likely to trigger a significant price drop. This is especially true with traders waiting to short bitcoin, as they did on Tuesday.
Will Clemente, co-founder of Reflexivity Research, has drawn parallels between Tuesday's price drop and bitcoin's movement around Thanksgiving in 2020. Back then, bulls were anticipating a breakout above the $20,000 mark, but bitcoin crashed swiftly after hitting $19,500, dropping to about $16,000 in a very short period of time. Clemente took to social media to suggest that any drop is an attempt to shake out over-leveraged investors and create buying opportunities. In the last six months, Bitcoin has emerged as a popular alternative asset class that offers significant returns to Wall Street institutions and retail investors worldwide. It is also an emerging financial phenomenon with unprecedented scarcity. However, it is unclear where the price of Bitcoin will peak. What impact will the Bitcoin phenomenon have on the future global financial market, economic order, and even national governance? However, it is undeniable that the financial scarcity created by Bitcoin will continue to exist for a long time.
And according to Fortune's article on March 5th, Bitcoin's popularity is only going to increase in the future. The reason is simple: companies such as BlackRock and Fidelity are including bitcoin in the portfolios of millions of investors, both directly and indirectly. Like any other investor, these new bitcoin holders will probably set aside any philosophical objections they may have and simply hope that the price of bitcoin increases.
