Overnight, the price of Bitcoin (BTC) dropped again, dragging the rest of the cryptocurrency market down with it. What can we say about this new bearish trend?
Bitcoin (BTC) and Cryptocurrencies Stumble Again
Last week, the price of Bitcoin (BTC) managed to reclaim the $90,000 level, but that attempt now appears to have failed, as the asset suffered a sharp drop overnight, briefly dipping below $86,000:
BTC price (hourly data)
At the time of writing, one bitcoin is trading at $86,300, down 5.2% over the past 24 hours. More broadly, the rest of the cryptocurrency market is also taking a hit, with market capitalization down 4.9% and top-10 coins losing as much as 8% in some cases, such as ADA and DOGE:
Overview of the top 10 cryptocurrencies
During every bearish (or bullish) trend, it is customary to look for reasons to explain the movement, and a few possibilities can therefore be explored.
The likely reasons for this decline
In terms of liquidations on perpetual markets, we can note $641.5 million in positions that were forced to close, and of this amount, $567 million came from long positions. Admittedly, the amounts involved are substantial, but far from significant compared to what we see during waves of panic.
Last Thursday, we revisited S&P Global’s warnings regarding Tether, which further exacerbated the prevailing gloomy sentiment. Since then, Paolo Ardoino, Tether’s CEO, has emphasized that Tether still holds excess liquidity relative to its liabilities—specifically, a $30 billion surplus at the end of the last quarter. Meanwhile, the Treasury bonds held by the company are reportedly generating $500 million in monthly profits.
On another front, Phong Le, CEO of Strategy, stated on Saturday during the “What Bitcoin Did” podcast that the company could potentially sell bitcoins if its market value were to fall below its net book value and it encountered difficulties raising new capital. Nevertheless, he also clarified: “I wouldn’t want our company to sell Bitcoin.”
In addition, the People’s Bank of China reiterated its stance on cryptocurrencies on Saturday, echoing that of the country’s government:
Commercial activities related to cryptocurrencies constitute illegal financial activities. Stablecoins, a form of virtual currency, currently do not effectively meet customer identification and anti-money laundering requirements, which exposes them to the risk of being used for money laundering, financing fraud, and illegal cross-border fund transfers.
However, these last three factors, although negative and potentially weighing on the overall climate of the ecosystem, do not seem to align with the timing of the decline, which accelerated starting at midnight Paris time.
Another explanation may lie with the Bank of Japan, as its governor, Kazuo Ueda, has hinted that rates could rise this month. In fact, the yield on 2-year Japanese bonds has now reached its highest level since 2008.
For years, the yen has been depreciating against currencies such as the euro and the dollar, which has encouraged borrowing in yen to invest in foreign markets. If rates rise, this practice could become less profitable and lead to a repatriation of capital to Japan, which may explain the market’s fears.
However, despite Kazuo Ueda’s remarks, it should be noted that this possibility has been known for a long time. Thus, if the cryptocurrency market becomes this volatile, the current downtrend could be more than just a simple correction.
