Why Did Bitcoin Drop 12% This Week?
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The price of bitcoin dropped below $26,000 this week amid decreased activity in the market, the growing crisis in China’s property sector, and a report that SpaceX has sold at least some of its bitcoin holdings.
- The bitcoin price has become susceptible to wilder price swings as trading volumes on exchanges have declined and large trades are able to have a greater impact.
- SpaceX, of which Elon Musk is CEO, reportedly sold at least part of its bitcoin holdings.
- Concerns over the issues with China’s property market leading to a greater economic decline indicate bitcoin may still be viewed as a risk-on asset.
Heightened Price Volatility On Decreased Trading Volume
Reports from blockchain analytics firm Glassnode and crypto firm Coinshares point to a general lack of interest in the crypto market as a contributing factor to this week’s bitcoin price decline. While bitcoin opened the week trading around the $29,400 level, it was down to roughly $25,697 by mid-Friday.
Notably, the report from Glassnode covered the extreme level of apathy and exhaustion in the bitcoin market on Monday, three days before the majority of the price decline took place. The report also warned, “[O]n a shorter timeframe, it could be argued to be a slightly top heavy market, with many price sensitive investors at risk of falling into an unrealized loss.”
In the report from Coinshares, which was released on Friday, the connection between lower trading volumes on trusted exchanges and increased price volatility for bitcoin was explained.
“In recent months, volatility has decreased, reaching levels comparable to the all-time lows observed at the start of the year,” wrote Coinshares head of research James Butterfill in the report. “Historically, such levels have often marked turning points for significant price swings, either upward or downward,” he wrote.
Additionally, Coinshares indicated the sharpness of the decline in the bitcoin price on Thursday night was amplified by the unwinding of a large number of long positions in the bitcoin futures markets on various exchanges.
According to Coinglass data, bitcoin traders liquidated about $1 billion in bets over the past 24 hours alone.
Did Elon Musk Have Something To Do With Bitcoin’s Drop?
There could have been another trigger—the perception that Elon Musk’s space exploration company was getting out of bitcoin. On Thursday, The Wall Street Journal reported that SpaceX had marked down its bitcoin holdings to $373 million and sold the crypto asset.
In the past, the Tesla (TSLA) CEO’s tweets have impacted prices of certain cryptocurrencies, especially meme coins such as Dogecoins.
Coinshares also cautioned investors to keep an eye on Musk’s moves as they tend to impact the bitcoin market.
Is Bitcoin Still a Risk-on Asset?
In terms of specific events that may have led to increased downward pressure on the bitcoin price, some market commentators have pointed to China’s Evergrande Group filing for bankruptcy. “Unrelated risk-on assets such as Bitcoin and cryptocurrencies are feeling the impact [from the Evergrande fallout],” said crypto trading platform PrimeXBT.
While bitcoin is commonly referred to as “digital gold” and an aspirational hedge against economic turmoil, the reality is the crypto asset often falls along with other risk-on assets at times of uncertainty, as was the case at the beginning of the COVID-19 pandemic.
That said, Coinshares views a potential full-blown economic crisis as a possible boon for bitcoin. “While we consider a full financial meltdown unlikely, should it transpire, it might bolster Bitcoin, especially if the repercussions permeate the broader financial sector,” wrote in its recent report.
But the week was not all rough. Coinbase’s regulatory approval for offering crypto futures trading in the U.S. was a bright spot for the crypto markets this week.
Coinshares also stated that the market may be coming to terms with the fact that an approval of a spot bitcoin ETF, most notably from BlackRock (BLK), may not be arriving as quickly as the market originally anticipated.
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Why Did Bitcoin Drop 12% This Week?