With Bitcoin, the entire crypto market has witnessed yet another one of the most horrific crashes. What is the reason for this drop, which led to $ 9 billion in liquidation in the markets?
Why did Bitcoin crash?
Tonight, a 12.3% drop occurred in Bitcoin in 20 minutes; price hits low$50,900 on Binance.
Three main reasons for the drop that led to $9 billion in liquidation in crypto markets:
- 1. Money laundering investigation alleged to be initiated by the US Department of the Treasury
- 2. Decline in mining operations based in China
- 3. Rumors about Coinbase
- 4. Increase in funding rates
1. US Department of the Treasury money laundering investigation
First; The drop was triggered by a tweet claiming that the US Treasury is investigating financial institutions for illegal use of crypto.
Famous crypto lawyer Jake Chervinsky has expressed doubts about the reliability of the news.. And “It is not possible for the Treasury to claim money laundering; stated that this falls within the remit of the Department of Justice (DOJ), which corresponds to the Department of Justice in the USA.. Moreover, he said that there are no reports of the allegations.
After the sharp price action sparked by this tweet, which doesn’t even have a reliable source, the bearish pressure continued to increase in the market.
2. Decline in mining activities
Bitcoin miners have also been hit hard after operations were halted in the entire Xinjiang region due to an accident at a coal mine in China last week. While it controlled more than 70% of (mining power), the outage in just one region caused Bitcoin’s hash power to drop by 40%.
This major change has raised concerns about China’s dominance of the crypto market, which The outage in the region affected almost half of the total hash power.
3. Rumors about Coinbase
Finally; Rumors that Coinbase executives were selling their COIN shares yesterday also took a toll on the Coinbase-influenced rising market sentiment last week.. The COIN dropped from a peak of $430 to $309 a day after its launch.
However, financial experts disputed these claims.. And they said that there is confusion here and that the inability to distinguish between real stocks and options contracts leads to a kind of misunderstanding.
CFA’s Eric Yakes, who brought the subject up on Twitter, deleted the tweet he posted. Meanwhile, some experts, including CoinShares CFO Meltem Demirors, stated that Coinbase executives only turned their assets into hedge funds, and this figure is still probably over 90%.
4. Decrease in funding rates and liquidations
While market sensitivity was adversely affected by all these; There was massive selling pressure last night after the tweet about the US Treasury Department.
Long positions using extreme leverage, especially Binance, are almost completely liquid. Increased sales as traders were forced to sell at these prices. This had a domino effect on prices.
More than $9 billion in positions, mostly long orders, were liquidated and approximately 50% of the funds that were liquid in the market belonged to Binance users.. Exchanges such as Huobi, ByBt, and Okex have also been liquidated over $1 billion.
The funding rate* for perpetual contracts has dropped to levels not seen since the March 2020 crash.. The largest liquidation since the crash could be a sign that the worst is over. .
Retesting local bottoms, available in the coming days
However, the funding rate of Bitcoin perpetual contracts (around 50 percent per annum) on Binance showed an upward trend again; which is seen as a worrying signal in the near term.
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