Uncover the drivers behind Bitcoin’s recent price drop below $25,700, considering factors like market sentiment and volatility.
Bitcoin Price Last Night Dropped Below $25,700, But Why Is It Falling? What are the main causes? In fact, the decline began on August 15, when it fell from above $29,300 to as low as $29,000. The next day it also dropped below $29,000, but yesterday was the day of the real crash
It should be mentioned that although it can be called a collapse, it is not an unusual event. Incidents like this have happened to the Bitcoin price dozens, if not hundreds of times in its fourteen-year history, with the last occurring just two months ago. Neither the extent of the deterioration nor the rate at which it occurred were unusual. In other words, everything is now within the standard of what is and remains a volatile asset.
Why Bitcoin price fell: volatility factor
The bottom line is volatility. What’s unusual is not yesterday’s crash, but the fact that since July 21, the price of BTC has been fluctuating in a very narrow range, from $29,000 to over $30,000 with rare excursions. over $31,000, for nearly a month in a row.
In other words, until August 15, it had reached a record low for 30-day volatility, leading many to anticipate that this period of unusually low volatility would be disrupted by either a rally or a substantial reduction.
Furthermore, in recent years’ history, July has always been a less volatile month, while August has increased volatility. 2023 is no exception, with July having truly record-low volatility, followed by August with significantly increased volatility.
Perhaps the most interesting thing to analyze is the relationship with other markets, especially the stock market/
Indeed, although Bitcoin is often compared as a financial asset to gold, it is still a risky asset, unlike the precious metal. In this respect, it is more similar to the stock market, a market that takes on excess risk.
For several days, the stock market struggled.
Starting with Nasdaq, it should be mentioned that in mid-July he broke a winning streak that since mid-March he has made 29% in 4 months. Instead, it has lost 7% in the past 30 days, down from -1.2% just yesterday.
This is not a similar increase to the price of Bitcoin, but it shows that it is risk markets in general that have suffered recently.
For example, since March 15. Bitcoin price first gained +31% then -16%, which is a performance reminiscent of Nasdaq performance, but with larger losses over the past thirty days. However, we must not forget that compared to the beginning of the year Bitcoin is still at +60%, while Nasdaq is at +29%. The reason is very similar to the S&P500, which lost only 5% in the last thirty days.
However, comparisons with the Hong Kong Stock Exchange’s Hang Seng Index (HSI) are even more interesting, as China is a particular watcher at the moment.
HSI has dropped 1.7% since yesterday and in the past thirty days it has lost 11%, not much lower than the Bitcoin price.
Furthermore, during August, it experienced no less than four significant crashes, one on August 2, one on August 8, one on August 14, and once from yesterday to today. The index on the 14th also seems to have influenced the Bitcoin price, effectively kicking off the current downturn.
Thus, it seems pretty clear that there is some form of correlation, possibly indirect, between the performance of the stock market and the performance of the Bitcoin price.
In particular, the cause of yesterday’s drop was the sell-off of BTC.
Many have speculated on the cause of these massive sales, but there may not be a single exact cause. What is known is that the macroeconomic situation is not good and many investors fear further collapse.
It also stoked fear in the crypto markets, triggering a small wave of panic that led to massive selling yesterday. In particular, hundreds of millions of dollars were liquidated in minutes in the futures market.
Notably, the past few weeks have witnessed exceptionally low trading volume, and during such conditions, even minor triggers can lead to pronounced price movements.
The news of Chinese real estate giant Evergrande’s bankruptcy declaration had a significant impact. With its prolonged financial instability and the potential for a real estate bubble in China, this announcement brought about confusion.
The main Bitcoin price drop occurred shortly after US exchanges closed and several hours before Chinese exchanges opened.
It is highly likely that the almost abrupt drop from $27.5 to $25,200 occurred as news of Evergrande’s bankruptcy spread.
In fact, a few hours after the Hong Kong exchange opened, the price of BTC surged to $26,700 and the Asian exchange opened with a slight drop.
Expected for some time, Evergrande’s bankruptcy sparks worries of a market-wide impact. Briefly halting after a 1.2% loss, the Hong Kong stock market resumed trading, witnessing additional declines. Now, the crucial query emerges: Is the apparent relief a true sign of recovery? Can China steer clear of contagion? With nearly two years to strategize, the potential for crisis prevention seems viable.