Original author: Mary Liu, Bitpush

At around 5:30AM Beijing time on Friday, Bitcoin suddenly plummeted by more than 8%, dropping to $25,409. The Bitcoin price on the Bitfinex cryptocurrency exchange was even lower, hitting a low of $24,715 before rebounding to over $26,000. This drop caused Bitcoin's market value to fall below $500 billion for the first time since June 16th and hit its lowest point since June 20th.

CoinGlass data shows that as of press time, the liquidation amount in the past 24 hours due to the sharp drop has exceeded 1 billion US dollars, including 472 million US dollars in Bitcoin liquidation and 302 million US dollars in Ethereum liquidation. Most of the affected positions are long positions.

Reasons for the decline?

The crypto community attributed the recent drop to a report by the Wall Street Journal, which stated that SpaceX wrote down $373 million worth of Bitcoin recorded in 2021-2022 on its balance sheet. Musk mentioned in a speech in 2021 that SpaceX owns Bitcoin, but the specific amount has not been disclosed as the company is private.

Musk has always been a long-term enthusiast of cryptocurrency, and in his X social media profile, there is a popular dog coin symbol "Ð". It is well known that any news related to Musk will affect the market.

Another piece of news that could trigger selling is that Chinese real estate developer Evergrande has filed for bankruptcy protection in the United States, raising concerns among investors about the possibility of problems in the Chinese real estate market spreading to other areas of the global economy.

In recent weeks, the price of Bitcoin has been falling, wiping out about half of the gains since BlackRock's application for a Bitcoin ETF on June 15th.

According to Bloomberg, one of the macro factors behind the sell-off is the continuous surge in global interest rates, particularly in the US, where the 30-year Treasury bond yield has risen to 4.42%, the highest level since 2011. The 10-year Treasury yield is at 4.32%, only one basis point lower than its 15-year high. This has not only suppressed cryptocurrency prices, but also dealt a blow to risk assets in traditional markets.

The Chief Investment Officer of cryptocurrency investment company LedgerPrime, Shiliang Tang, said: "Earlier this week, people were optimistic that the decision on the Grayscale Bitcoin ETF would be made this week, but the decision was ultimately passed without any results. In addition, the traditional market has been weak all week, with the S&P 500 index and technology stocks being sold off, 10-year interest rates reaching highs, the US dollar rising, and weak Chinese credit and economic data, all of which are unfavorable for risk assets."

Derivatives market bearish on Bitcoin

The Commodity Futures Trading Commission (CFTC) of the United States has released a report on the Commitments of Traders (COT), which shows that as of the week ending August 8th, leveraged funds - including hedge funds and commodity trading advisors - increased their bearish bets on cash-settled Bitcoin futures listed on the Chicago Mercantile Exchange (CME).

The Tie's Director of Content, Lawrence Lewitinn, stated in their weekly newsletter that "two-thirds of their positions are bearish (displayed in red), while one-third is bullish (displayed in blue). This is the largest position since April 2022."

Lewitinn believes that although the trend of improvement in the cryptocurrency field and the maintenance of optimistic sentiment in the fundamentals continue, it is now more important to focus on the potential spillover effects of macro to broader risk assets and even cryptocurrencies.

Before this decline, Bitcoin had been trading in a narrow range for several months. According to data compiled by Bloomberg, the indicator measuring the volatility of raw cryptocurrency prices has been on a downward trend, with a 90-day volatility reaching its lowest level since 2016 this week. Analysts at cryptocurrency market intelligence company Glassnode wrote in a recent report: "The digital asset market continues to trade within historically low volatility ranges, and multiple indicators suggest that investors have become extremely indifferent and exhausted within the range of $29,000 to $30,000. A very boring, volatile, and sideways market may still exist."

Meanwhile, Brian D. Evans, CEO of BDE Ventures, a venture capital firm, tweeted that "I believe Bitcoin is poised for a major squeeze, with all technical indicators pointing to significant volatility, whether up or down. We've seen this pattern before. Bitcoin fluctuates for a long time, trading volume contracts, and then there's a 10% rebound or pullback that either creates panic or excites the market."

The encryption analyst Will Clemente pointed out in his tweet that this year's Bitcoin implied volatility has seen the largest single-day increase. The analyst predicts that as the price falls, selling pressure will intensify until support is found.

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