Bitcoin experienced a dramatic sell-off, plunging over 20% in a single day and breaching the $60,000 support level before falling further to under $53,000. At the time of writing, it is trading around $54,752. Ethereum faced an even steeper decline of 12.9%, dropping below $2,300. The broader cryptocurrency market followed suit, with major assets like OP, AVAX, and ENS, as well as newer tokens such as AEVO, ZK, W, REZ, SAGA, OMNI, and IO, all falling approximately 10% to hit new all-time lows. SOL showed relative resilience with a more modest decline of 4.9%.
Data from Coinglass reveals that the past 24 hours witnessed nearly $767 million in liquidations across the market. Long positions accounted for the majority, with $658 million liquidated, while short positions saw $108 million in liquidations.
This sharp downturn triggered significant liquidations both on and off the blockchain. According to DefiLlama, Ethereum faces around $29.1 million in on-chain lending liquidation pressure near the $2,324 level. Furthermore, a 20% drop from the current price could potentially trigger up to $164.4 million in Ethereum loan liquidations. Coinglass data also indicates that if Bitcoin were to fall to approximately $51,500, an estimated $310 million in long positions could be liquidated across major centralized exchanges (CEXs).
What Caused the Recent Market Crash?
U.S. Election Uncertainty and the Fading "Trump Trade"
Kamala Harris's surging popularity in U.S. election polls has delivered a dual blow to the so-called "Trump Trade." Strategies that initially benefited from the expectation of a Trump victory are now losing momentum. Just weeks ago, the assassination attempt and President Biden's withdrawal from the race were seen as favorable for Trump's electoral prospects. Markets had priced in expectations of looser fiscal policy and lighter financial regulation under a potential Trump administration.
BlackRock's Chief Investment Officer, Neeraj Seth, stated in a Bloomberg interview last Thursday that they had already observed some unwinding of the Trump trade and anticipated that "these trades will be revisited repeatedly between now and early November." Cryptocurrency market performance, particularly after Trump's promise to make the U.S. the "crypto capital of the world" and a "bitcoin superpower," had become a proxy for his likelihood of returning to the White House. Arca's Head of Trading, Kyle Doane, suggested in an interview that Bitcoin's recent weakness could be attributed to Harris's "slowly rising poll numbers."
Stock Market Correction and Bearish Signals from Buffett
August saw significant consecutive pullbacks in U.S. stock markets. Alarming recession signals triggered widespread panic selling. The S&P 500 closed down 1.84%, while the Nasdaq fell 2.43%. The Volatility Index (VIX) spiked to 26.04. Large-cap tech stocks, with the exception of Apple (which posted earnings above expectations), were almost universally down. Nvidia plummeted over 7% intraday, and chip and AI stocks fared even worse, with the Philadelphia Semiconductor Index, TSMC, and ARM all declining around 5%.
This sentiment was underpinned by weak economic data. U.S. non-farm payrolls for July increased by only 114,000, the lowest reading since December 2020, falling far short of the expected 175,000 and down significantly from the previous month's revised figure of 179,000. The unemployment rate also rose to 4.3%, triggering a recession indicator historically known for its accuracy. A prevailing market view is that the Federal Reserve has been "too late" to initiate interest rate cuts.
U.S. Treasury bond performance also signaled a shift towards more dovish policy expectations. Yields fell across the board this week, with the 10-year Treasury note dipping below 4% for the first time since February. The more policy-sensitive 2-year Treasury note fell nearly 30 basis points last Friday, marking its largest drop since the Silicon Valley Bank collapse in March of last year.
Adding to the bearish sentiment, Warren Buffett appeared to be "selling the top" and sending cautious signals to the market. According to the latest quarterly report, Berkshire Hathaway reduced its Apple holdings from 789 million shares in Q1 to approximately 400 million shares in Q2—a reduction of nearly 50%. Furthermore, the "Buffett Indicator" (the ratio of the total stock market capitalization to GDP) has climbed to 171%, suggesting U.S. stocks are significantly overvalued and face substantial correction risks.
Yen Interest Rate Hike and Weakening Carry Trades
Another critical factor impacting global liquidity is the disruption of the Yen carry trade. Recently, the Bank of Japan raised interest rates from 0% to 0.25%, its first hike in many years.
A carry trade typically involves borrowing funds in a developed market with low interest rates and investing in higher-yielding assets in emerging markets. Many investors had taken advantage of ultra-low rates to borrow Yen cheaply and fund investments in other assets. However, as interest rates rise, the cost of maintaining these leveraged positions becomes more expensive, introducing broad instability across financial markets, including cryptocurrencies.
The Yen carry trade had been exceptionally popular in emerging markets due to low volatility and investor bets that Japanese rates would remain at rock-bottom levels. But the Yen recently appreciated over 1%, and a sudden strengthening of this funding currency hurts carry trade profitability. The Bank of Japan's暗示 (implied) at its latest meeting that further rate hikes are possible. Chris Turner, an ING strategist, noted in a report last week that Yen carry trades have faced setbacks recently, and rising volatility has forced many institutions and investors to "unwind their positions."
Selling Pressure from Jump Crypto and Mt. Gox
Significant institutional selling pressure also emerged from within the crypto ecosystem itself. On August 4th, analysis by EmberCN suggested that Jump Trading might be offloading Ethereum. They were reportedly redeeming a sizable amount of wstETH (120,000 tokens, worth approximately $410 million) in batches into ETH and transferring it to exchanges like Binance and OKX.
Within nine days starting July 25th, they had already redeemed 83,000 wstETH for 97,500 ETH. Of this, 66,000 ETH ($191.4 million) had been moved to exchanges. At the time of writing, their wstETH storage address still held 37,600 wstETH awaiting transfer, with an additional 11,500 stETH being redeemed into ETH and 20,000 ETH queued for batch transfer to exchanges.
Additionally, on July 31st, the defunct Mt. Gox exchange transferred 33,963.888 Bitcoin (worth approximately $2.25 billion) to two separate addresses within six minutes. Most was sent to a test address used the previous day (33,105 BTC), with the remainder (858.644 BTC) sent to a newly created address. According to monitoring by Yu Jin, following this transfer, the Mt. Gox address still holds 46,162 Bitcoin, valued at roughly $3.056 billion.
Is the Bull Market Still Intact?
This is not the first major correction during the current market cycle. The first significant "flash crash" occurred after Bitcoin broke its previous all-time high of $69,000. Back then, Bitcoin fell below $60,000 overnight, triggering over $1 billion in liquidations. The Bitcoin Volatility Index spiked to 78.81, nearing a yearly high. Interestingly, Bitcoin ETF daily trading volume hit a record $10 billion during that period, leading many to view the pullback as a natural correction following a historic peak.
A second major downturn happened two months ago around the Bitcoin halving. That event caused $935 million in liquidations. While Bitcoin's drawdown was less severe at under 10%, altcoins—led by Ethereum—were decimated, resulting in a bloodbath across the crypto market.
Despite these previous broad market declines, the overall bullish sentiment remained largely unscathed. However, the current downturn seems to have analysts more concerned.
On June 14th, despite strong U.S. stocks and favorable U.S. crypto policy, CoinDesk reported that traders anticipated a deeper Bitcoin correction in the coming weeks, primarily due to miner selling and widespread profit-taking. Alex Kuptsikevich, Senior Market Analyst at FxPro, noted, "A new wave of dollar strength and demand for stocks is emerging. The gradual decrease in demand for risk assets is forming a trend of declining intraday highs for Bitcoin."
He added, "Bitcoin continues to test the strength of the 50-day moving average but hasn't found sufficient reason to fall further. This persistent testing of lows allows the bears to succeed quickly, with the next target at $60,000."
Some observers pointed to miners—who provide the computing power for the Bitcoin network—as a potential source of selling pressure. Analysts noted, "Increasing net outflows of Bitcoin from miners do not necessarily put pressure on the Bitcoin price. However, the price tends to stagnate."
Furthermore, expectations surrounding Ethereum are not sufficiently strong to maintain bullish analyst forecasts. On June 12th, Matrixport officially stated that since the merge of the PoW and PoS chains in September 2022, the ETH/BTC ratio has been on a clear downtrend. Although Ethereum has occasionally briefly outperformed Bitcoin, it has not sustained these gains. As the pair approaches the top of its descending channel, ETH is likely to underperform again.
Conversely, some remain bullish on meme coins, one of the cycle's biggest narratives. BitMEX founder Arthur Hayes expressed optimism, predicting a Dogecoin ETF could be launched by the end of this cycle, basing his forecast on the significant growth rate of dog-themed meme coins over the years. Raoul Pal, CEO and Co-Founder of Real Vision, agreed with Hayes's prediction and expressed strong support for a Dogecoin ETF, even discussing the possibility with Jan van Eck, CEO of investment management firm and spot Bitcoin ETF provider VanEck.
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Frequently Asked Questions
What triggered the recent sharp decline in Bitcoin's price?
The drop was caused by a combination of factors including uncertainty around the U.S. election impacting the "Trump trade," a significant correction in U.S. stock markets fueled by recession fears, a hike in Japanese interest rates disrupting carry trades, and substantial selling pressure from major crypto entities like Jump Crypto and distributions from the Mt. Gox bankruptcy estate.
How significant were the liquidations during this market crash?
Liquidations were substantial. Over $767 million was liquidated in 24 hours, with long positions bearing the brunt at $658 million. Furthermore, on-chain data indicated potential for hundreds of millions more in liquidations if prices fell further, highlighting the extreme leverage present in the market.
Is the current bull market for cryptocurrencies over?
While the recent correction is severe, it does not necessarily mean the bull market is over. Previous cycles have seen similar sharp corrections. However, analysts are more cautious this time due to the confluence of macroeconomic headwinds and internal market selling pressure. The long-term trend will depend on broader adoption, regulatory developments, and macroeconomic conditions.
What is the "Trump Trade" and how does it affect crypto?
The "Trump Trade" refers to market strategies betting on asset performance under a potential Trump presidency, anticipating policies like looser financial regulation and supportive stance towards cryptocurrencies like Bitcoin. As polling numbers shift, these trades are being unwound, contributing to selling pressure.
What is a carry trade and why did the Yen hike impact crypto?
A carry trade involves borrowing in a low-interest currency (like the Yen was) to invest in higher-yielding assets. The Yen's rate hike made borrowing more expensive, forcing investors to unwind these leveraged positions across various markets, including cryptocurrencies, reducing liquidity and increasing selling.
Should investors be concerned about continued selling from Mt. Gox and large institutions?
While the movement of large sums of Bitcoin from Mt. Gox and selling by entities like Jump Crypto creates near-term downward pressure, the market has anticipated these events for some time. The impact is often psychological as much as fundamental, but it can contribute to volatility in the short term.