Why is Bitcoin falling? Analysts point out 5 potential reasons

Bitcoin's decline analyzed 5 potential factors identified

Author: TOM MITCHELHILL, COINTELEGRAPH; Translation: Song Xue, LianGuai

According to reports, Elon Musk’s Selling of his Bitcoin holdings, the bankruptcy of a Chinese real estate giant, and concerns about interest rate hikes are all theories related to the significant drop in Bitcoin price.

Around 9:35 PM UTC on August 18, the price of Bitcoin suddenly plummeted more than 8% in 10 minutes, causing the entire cryptocurrency market to crash, leaving many in the crypto community puzzled.

Although there seems to be no consensus on the sudden market drop, several cryptocurrency market analysts have shared their preliminary theories.

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Selling of Bitcoin by Musk triggers interest rate concerns

eToro market analyst Josh Gilbert attributed the stock price drop to an article published by The Wall Street Journal on August 17, which stated that Musk may have sold part or all of his $373 million worth of Bitcoin holdings.

“Whenever there is a well-known figure in the Bitcoin field, especially someone as influential as Elon Musk, it puts pressure on the Bitcoin price.”

The price of Bitcoin suddenly dropped about 2.5 hours after the news was released.

Gilbert suggests that another theory could be the swift change in sentiment due to broader market expectations of future interest rate hikes by the Federal Reserve.

Gilbert explained, “If we also consider some weaknesses seen in the global market in the past few weeks, especially in risk assets, and anticipate that interest rates may remain at higher levels for a longer period, then this is a good opportunity for a pullback.”

He added, “Last month, Bitcoin has been struggling to rise, trading between $29,000 and $30,000, and there have been hardly any ‘good news’ to push the asset higher, which only exacerbates the selling.”

Government bond yields

CMC Markets market analyst Tina Teng holds a different view, believing that the recent rise in government bond yields is the underlying reason behind the sell-off.

Teng explained that an increase in bond yields usually indicates a decrease in overall market liquidity. “This could be the main reason for the decline in cryptocurrencies,” she said.

In addition, Teng stated that although the Evergrande crisis may have an indirect impact on the price of Bitcoin, she does not believe it is one of the fundamental reasons for the drop in Bitcoin price. “It has a greater impact on the Chinese economy and investors’ sentiment,” she explained.

Whale dumping

While there are many other news events that could be contributing factors to this situation, anonymous derivatives trader @TheFlowHorse suggests that the sudden price drop may be caused by a large participant conducting a massive sell-off, thereby putting further pressure on derivatives.

“This is not just a natural waterfall. It was abandoned and launched by someone for a goal. The spot trading volume is almost incomparable to the ordinary trading volume.”

According to the data from the encryption analysis platform Coinglass, over 427 million US dollars worth of Bitcoin long positions were liquidated in the past 4 hours. In the past 24 hours, traders holding long positions have liquidated over 822 million US dollars, betting that the price of encrypted assets will rise.

In the past 24 hours, Bitcoin long positions worth over 427 million US dollars have been liquidated. Source: Coinglass

Horse describes most of the decline as “pure speculation,” suggesting that large funds may have sold Bitcoin positions to “trigger a cascade of ETH purchases” since the SEC’s report implied its approval of Ethereum futures ETF was released shortly after the sell-off.

According to TradingView data, Bitcoin has rebounded slightly since the crash, rising 1.2% in the past two hours. As of the time of this article’s publication, the turnover price of Bitcoin is $26,619.

Its price seems to be boosted by the news that the U.S. Securities and Exchange Commission may approve Ethereum futures ETF products as early as October.

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