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SpaceX didn’t cause Bitcoin price crash, here’s what likely did

Long liquidations, poor sentiment and rising interest rates all play a part in the recent Bitcoin price tumble.

Traders had a shock yesterday when the price of Bitcoin (BTC) dropped by 8% in 10 minutes, diving down to $25,489. While the pioneer crypto has slightly recovered since then, trading at around $26,400 at the time of writing, some investors have been scratching their heads as to why the price suddenly dived after enjoying a bullish few months following a string of Bitcoin ETF filings.

If you read the news, many fingers point to Elon Musk’s aerospace firm, SpaceX, which allegedly sold $373 million of its Bitcoin holdings. On August 17, the WSJ reported that SpaceX wrote down a substantial portion its BTC holdings, writing: “SpaceX wrote down the value of bitcoin it owns by a total of $373 million last year and in 2021 and has sold the cryptocurrency”. 

This claim however has not been confirmed by SpaceX, and it’s short-sighted to pin the price crash on this one factor.  

SpaceX didn’t panic and sell off $373 million in BTC, it simply wrote down the value of the asset. The writing down of an asset typically happens when a company believes the asset’s market value has decreased. This means that Space X likely wrote down the value of its BTC to more accurately represent its value and align the recorded value with the current market value. 

Here are some other factors that are much more likely to have contributed to the price crash.

Factor #1: Long liquidations 

A string of long liquidations have squeezed the market over the past week. Data from CoinGlass shows $499.10 million in BTC has been liquidated over the past 24 hours – $373 million of which were long positions. 

Total liquidations of BTC: CoinGlass

Lewis Harland, a Decentral Park Capital trader, told CoinDesk that the imminent publication of the Grayscale v. SEC court ruling relating to its Bitcoin ETF has seen BTC Open Interest “ramp up in position, with a bias to shorts”, suggesting that many traders are exercising caution due to the uncertainty of the outcome.

He added: “The break below $28,500 led to material volumes of longs being liquidated. This has been combined with spot selling ahead of the date (likely anticipating further delays).”

Bitcoin volumes have also been very low over the past few months, pointing further to a liquidity squeeze.

James Butterfill, Head of Research at CoinShares, wrote on X that Bitcoin volumes have recently been substantially lower than at the beginning of the year – roughly $2.3 billion per day compared with $11 billion per day at the beginning of the year – leaving markets “much more sensitive” to larger traders. 

Factor #2: The long wait for ETF approval is dampening sentiment

Earlier this year, BlackRock, the world’s largest asset manager, filed for a Bitcoin ETF, sending the market into an excited frenzy and pushing Bitcoin past $31,000. A string of other giants followed suit, and the SEC now has a large pile of robust Bitcoin ETF applications sitting on its desk. 

As Butterfill observed in his analysis, the market has since come to the realisation that SEC approval of a Bitcoin ETF in the US “isn’t imminent.”

Read more: WisdomTree and Invesco reapply for Bitcoin ETFs, following BlackRock

Legally, the SEC can delay ETF applications for around 8 months (240 days), typically to open them up to public comment. This means that the wait for a decision on approval is unlikely to come until 2024. 

This means that ARK Invest, the “first in line” based on the submission timeline, can expect a decision by January 2024, while other asset managers, such as BlackRock, who applied in May, can expect to wait until the spring of 2024. 

Factor #3: Rising interest rates 

Last month, the US Federal Open Market Committee hiked interest rates to the highest level in 22 years, unanimously backing a 25bps increase.

Harland told Coindesk that “U.S. interest rates are rising to multi-year highs. The 10-year yield has pushed to 15-year highs. This is bearish risk assets in general.”

He added, “If this sell-off in bonds continues we could see continued negative price action in risk assets into the weekend.”

CoinShares’ James Butterfill also shared this view, writing that with interest rates at their highest level in 20 years, “Bitcoin has often been the first to act in recent years, so this maybe preceding a broader crash in other asset classes.” 

Factor #4: Yuan may be devalued

Another big macro risk that could have played a role in the market sell-off is the potential devaluation of the Chinese Yuan.

Read more: Chinese city becomes first to pay employees in CBDC, but is there a privacy risk?

The Yuan has been on a disappointing run for months, with Bloomberg reporting that the nation’s slumbering growth has caused the currency to fall to its lowest levels since November 2022. It has now fallen 5% this year, becoming the worst performer in the Asian market.

With this, the Chinese government may be considering devaluation. When the government devalued the Yuan in August 2015, Bitcoin fell 25% in the two weeks following the devaluation.

Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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