Bitcoin's current crash: What's different

Author: Liam

On April 30, Bitcoin fell below $60,000. It hit its worst monthly performance in two years. It fell below $58,000, a single-day drop of more than 8%. According to Coinglass data, about 117,000 people had their positions liquidated within 24 hours, with a total liquidation amount of $381 million. China Fund News wrote that Bitcoin has fallen by about 16% in April, the worst month since the bankruptcy of FTX, the world's second-largest cryptocurrency exchange, in November 2022. The optimism surrounding the U.S. Bitcoin spot ETF is also fading.

The craze for the U.S. Bitcoin spot ETF pushed the price of Bitcoin to a historic high of nearly $74,000 in March, but as the market's expectations for the Fed's rate cuts have declined, demand for high-risk investments has been hit, and the funds flowing into Bitcoin products have been significantly reduced. According to Bloomberg data, as of April 29, 11 Bitcoin spot ETFs had a net outflow of $182 million that month. It is worth noting that these ETFs had received a net inflow of $4.6 billion in March.

According to Tree News, on May 1, the net outflow of US spot Bitcoin ETFs reached $559.5 million. This is rare. BlackRock IBIT had a net outflow of $36.9 million, the first single-day net outflow. Fidelity FBTC had a net outflow of $191.1 million, and has had a net outflow for five consecutive trading days.

According to the latest data from Bank of America, investors withdrew $600 million from cryptocurrency funds in the week ending May 1, the largest scale since June 2022.

On May 2, affected by the Federal Reserve's decision to maintain the benchmark interest rate range of 5.25%-5.50%, Bitcoin rebounded from the support level of $57,000 and reached a high of $59,590. It rose 3.2% in 24 hours.

On April 20, Bitcoin completed its fourth halving, and plummeted after 10 days. It has attracted special attention from global investors, Wall Street institutions and authoritative media. What is the difference from the previous plunge? It is the focus of their attention. I think there are two points. First, Bitcoin has now become a compliant asset, attracting global compliant funds. Once it plummets, the degree of public attention it has aroused has become more extensive than before. Secondly, Bitcoin is more closely integrated with macro factors, and people's focus is shifting from the past Bitcoin halving to the results of monetary and fiscal policies.

Previously, industry insiders said that we may be entering a new stage of the macroeconomic cycle, and macroeconomic factors are becoming a more critical factor affecting BTC price trends. Even if the direct impact of Bitcoin halving on prices is not as great as before, it is very exciting for Bitcoin to demonstrate its immutability in the macro environment.

The reason given by JPMorgan Chase for the Bitcoin plunge is due to retail selling. In a report released, JPMorgan Chase said that the crypto market has seen significant profit-taking in recent weeks, and retail investors have played a greater role in the sell-off than institutional investors.

According to data from JPMorgan Chase and Bloomberg, investors withdrew $558 million from the U.S. spot Bitcoin ETF on May 2, the largest single-day outflow of funds from the fund since its launch in mid-January. In addition, the Grayscale Bitcoin Trust Fund outflowed $167 million, and the trust fund has outflowed more than $17 billion since it was converted to an ETF in January.

The reason given by Reuters is the impact of lower expectations for the Fed's rate cuts. Investors believe that the Fed may not cut interest rates at all this year, which will hit interest rate-sensitive assets such as cryptocurrencies and emerging markets, including stocks and bonds, and even commodities.

According to Bloomberg, the sharp fluctuations in Bitcoin may be a precursor to broader changes in risk appetite in global markets. Following a nearly 16% plunge in April, Bitcoin has fallen by about 4% in the past few days, and some investors are looking for clues to changes in liquidity dynamics in Bitcoin transactions that may impact other assets. Charlie Morris, chief investment officer of ByteTree Asset Management, said Bitcoin is our favorite test indicator. This is a warning of future troubles in the financial market, but we can believe that it will rebound at some point.

Market analyst Rekt Capital pointed out that Bitcoin has repeated its 2016 history in this cycle, recently falling below the low point of the current re-accumulation range. In 2016, the deviation was -17%, and by 2024, the deviation has been -6% so far.

He added that the downward trend in 2016 "lasted about 21 days after the halving before turning upward", which means that Bitcoin is in the danger zone for another 8 days, so its price trend may continue to fluctuate.

If there is a difference in the "Bitcoin crash", I think the biggest difference in this round is the difference between the "Bitcoin spot ETF" before and after approval. It is mainly reflected in the compliance or non-compliance behind the funds flowing into Bitcoin. Transparency or opacity. The scope of the target investment group is large or small. High or low risk tolerance.

The approval of 11 Bitcoin spot ETFs including BlackRock and Fidelity by the United States on January 11 can be regarded as a landmark event in the development of the currency circle. This event means that Bitcoin has officially landed on Nasdaq, New York Stock Exchange and Chicago Board Options Exchange. Securities traders in all countries around the world can buy and sell Bitcoin ETFs through the above three exchanges.

A large number of funds from traditional Wall Street financial institutions and global investors have flowed into Bitcoin in a compliant manner, injecting unprecedented liquidity into Bitcoin, thereby pushing Bitcoin prices to historical highs. This may also be the significance of the hype that Bitcoin spot ETFs will be passed since October 2023. It is also one of the important narratives of Bitcoin's new cycle, "compliant funds."

Looking back at the history of Bitcoin's four cycle narratives, behind each round of bull market cycle narratives, there must be incremental funds flowing into Bitcoin, and Bitcoin will open the bull market curtain. The first three cycle narratives were to attract off-site funds to flow into Bitcoin in a non-compliant and unique way through continuous technological innovation, pushing Bitcoin prices to create historical highs one after another. And it is precisely because of this uniqueness that it has attracted the attention of Wall Street institutions and global investors.

Bitcoin has become a compliant asset, but how to tell the story of compliant assets? At present, Bitcoin is not only developing in the same way as in the past historical cycles, but it is also integrating more closely with macro factors in a compliant manner. What will happen in the future? Let's wait and see.