After remaining relatively stable at the $10k level for several weeks, the worst fears came true, at least for the bulls. On Tuesday, the bitcoin price dropped to $7,944.30, a level not seen since June this year. Although the top crypto has corrected higher to $8,462.18 at press time, the $8,500 and $8,750 levels are preventing recovery.
Other cryptocurrencies mirrored the same downtrend, with some even shedding more than Bitcoin. Bitcoin SV (BSV) led today’s downturn, shedding a whopping 24% of its value. This corroborates the notion that a notable move in bitcoin almost always proportionally affects other cryptocurrencies.
While some crypto market watchers attribute this drop to technical factors – often a big catalyst for price moves in a nascent asset class afflicted by poor price discovery and lacking in significant fundamentals – this recent drop comes after a few intriguing developments in the crypto ecosystem.
So, What Caused This Drop?
The sudden turn of events- which came as many crypto experts were clamoring for the price of bitcoin to rise – has stirred a lot of questions in the crypto community as many wonders why the market crashed.
As mentioned, this bitcoin downward move could have been caused by technical factors after the top coin breached a key support level, igniting a brutal sell-off. However, there are other catalysts to factor in.
Some analysts are attributing this bloodbath to the unimpressive launch of Bakkt physically-settled bitcoin futures, the recent 40% flash crash in bitcoin’s hash rate while others are pointing to margin calls at BitMEX.
Bakkt’s Underwhelming First Day Performance
The major culprit in this event is Bakkt’s launch of its bitcoin futures. After several delays, Bakkt finally opened its doors on September 23. The hotly-anticipated launch was met with very little interest from institutional investors, with a trading volume of only 72 bitcoins despite many analysts claiming that it was a tipping point for bitcoin. Now many analysts are saying that this underwhelming performance hurt bitcoin’s price.
The CEO of Celsius Network, a crypto lending, and depository firm Alex Mashinsky stated:
“The disappointing BAKKT opening signals to the crypto community that institutions are less ready to invest in BTC at scale than was supposed, which means the price was probably too high and due for a correction. What we’ve just seen is short sellers and momentum traders piling on to make things worse, and now here we are back at support.”
It’s worth remembering that in December 2017 during the wild bull run for cryptocurrencies, the launch of CME futures culminated in the start of the crypto winter which lasted for an entire year.
Bitcoin Sheds A Huge Chunk Of Hash Rate
After a steady rise over the past few weeks, bitcoin’s hash rate plummeted by 40% on Tuesday. Hash rate soared to 98 exohashes per second on September 22 but suddenly dropped to 67 exohashes on September 23. The last time bitcoin’s hash rate noticeably plummeted was back in November 2018.
An incident of this magnitude provokes a series of questions, particularly with bitcoin’s network security. A higher hash rate is normally indicative of a very secure network. One would not expect anything less from the OG cryptocurrency. When this hash power suddenly drops with no clear explanation, there’s a cause for concern, for obvious reasons.
In addition, experts have cited a correlation between the network’s hash rate and bitcoin’s price in the past. And as Wall Street Veteran, Max Keiser puts it: the price follows hash rate.
As of now, the hash rate has climbed back to 92.80 EH/s according to Blockchain.com. However, the price of BTC has not reacted in a positive way yet and is hovering around the $8,300 level. The nagging question now remains: will the price follow the hash rate? We saw the price plunge as soon as the hash dropped. Will the price trend upwards now that the hash has recovered?
Margin Calls At BitMEX
Others opine that margin calls at crypto exchange BitMEX sparked the sell-off as over $600 million was liquidated at BitMEX. A margin call occurs when the value of an investor’s equity (comprised of securities bought with borrowed funds), in our case bitcoin, falls below a certain point. The broker/margin lender requests the bitcoin investor to deposit additional money so that the account can attain the required percentage known as the maintenance margin.
That being said, reports state that bitcoin shed $1000 in minutes after the crypto exchange conducted the margin calls. Skew markets also noted this liquidation on twitter.
Nonetheless, the guilty catalyst remains unclear in the unregulated Bitcoin market.
Community Response
This market crash is on everyone’s lips at the moment.
Bitcoin basher and gold proponent Peter Schiff took to Twitter to rub it in and forecast a drop to more painful levels. He tweeted:
“#Bitcoin has finally broken below the support line of the large descending triangle it has been carving out for months. This is a very bearish technical pattern, and it confirms that a major top has been established. The risk is high for a rapid decent down to $4,000 or lower!”
Despite Schiff appearing intent on seeing bitcoin fail, some bitcoin enthusiasts remain positive. Alunaut, the co-founder of Aluna Social, a gamified social trading terminal for crypto traders, wrote a very bullish prediction for bitcoin stating that this is the last time we see sub-$10,000 bitcoin.
Another perma-bull who is unfazed by the market crash is Michael Goldstein, bitcoin maximalist and President at Nakamoto Institute. Goldstein alluded that according to the stock-to-flow model introduced by renowned analyst PlanB, bitcoin is gearing up for a big move. In simple terms, bitcoin is still in bull territory, hence nothing to worry about.
Whether bitcoin will get back above $10,000 in the coming days is anyone’s guess.
