Bitcoin experienced a rapid plunge after five o'clock yesterday morning, and for a period of time, it once dropped to $58,000, marking the lowest point in nearly ten days. Ethereum also briefly fell below $2,400.
During this intense volatility, over 86,000 cryptocurrency investors lost everything in the past 24 hours, with severe liquidations. According to Coinglass data, leveraged futures positions worth $205 million were liquidated, and in the past 24 hours, the total amount of liquidations exceeded $319 million (with long positions accounting for $280 million), affecting over 86,000 people.
This sudden price drop in a short period of time indicates the impact of insufficient market liquidity and a rapid downturn in investor sentiment.
The recent drop in prices has left many investors shocked, and they should be highly vigilant about future trends!
Reasons for the recent decline
Internal transfer of 30,000 BTC within Binance
Although it was only an internal transfer, such a large-scale transfer often triggers market panic, especially in the current unstable market sentiment. This situation can easily be misinterpreted as a sell-off, leading to panic selling in the market. In addition, the actual transfer may involve 130,000 BTC, further exacerbating the panic.
Outflow of funds from BTC spot ETF ARKB
The massive outflow of funds from the Bitcoin spot ETF is an important market signal.
Currently, the fund flow of 12 US Bitcoin spot ETFs on the 27th has not been fully disclosed, but it is worth noting that ARKB from ARK & 21Shares saw an outflow of over $100 million, setting a record for the largest outflow in the fund's history.
In contrast, the previous largest outflow came from GBTC, which only saw an outflow of $18 million on the 27th. The reason for the significant fund movement in ARKB is still unknown, but Bitcoin's sharp drop without any particularly bearish news may indicate some unknown operations behind the scenes.
ETFs usually represent the confidence of institutional investors, and when a large amount of funds are withdrawn, it is often interpreted by the market as these institutions being pessimistic about the market outlook, which can exacerbate market panic and lead to further selling.
Seasonal factors and portfolio reassessment
September is the month when summer ends and autumn begins, which usually triggers investors to reassess their portfolios.
After a relatively sluggish market period in the summer, investors may adjust their assets, increasing market volatility. This seasonal factor also applies to the cryptocurrency market.
Liquidation of long leveraged positions and decreased USD liquidity
Leverage liquidation usually exacerbates drastic price fluctuations, especially when market risk aversion is on the rise.
In addition, reduced USD liquidity can also affect the global market, causing investors to reduce their exposure to high-risk assets. Coupled with the market's anticipation of NVIDIA's financial report, investors may choose to avoid market volatility, further driving prices down.
NVIDIA is one of the world's largest companies and is at the forefront of the artificial intelligence boom. Its strong profit performance over the past 12 months has been a major driving force behind the bullish stock market in the United States.
Unsurprisingly, this bull market has spread to the related cryptocurrency field. Therefore, this is a major positive for cryptocurrency giants, and Bitcoin may not stay below $60,000 for long.
Future trends of BTC prices
Short-term market sentiment and technical aspects
Bitcoin's short-term volatility has intensified, breaking through the key support level of $56,000, which has attracted active short-term sellers and may trigger further selling. The futures premium of Bitcoin has stalled, and professional traders advise investors to be cautious about the current market trend.
In the short term, Bitcoin prices are still likely to experience significant fluctuations. Technical analysis indicates that Bitcoin has recently broken through several key support levels (such as the 50-day moving average), which may lead to further declines. For example, if Bitcoin fails to stabilize at the $56,000 support level, prices may further decline.
Furthermore, short-term Bitcoin sellers have become active. In a research report on August 27, Manager XBT pointed out that large short-term Bitcoin sellers have become "active," explaining that although Bitcoin successfully rose last week, some stagnant indicators have begun to show signs of activity again.
Manager XBT wrote: "Short-term holders have transferred 33,155 Bitcoins, as indicated by the 1w-1m spent output age range. This may bring immediate selling pressure, and the slowing price indicates that Bitcoin may trigger a free fall."
He suggested that if these numbers increase in the coming days, one should be "extra cautious," adding that potential selling may become more intense.
The recent downward trend in Bitcoin prices has not yet turned many Bitcoin derivative traders bullish, indicating their skepticism about the recent trend.
The Bitcoin futures premium (a key indicator of derivative risk appetite) has been stagnant at around 6% over the past month. This indicates that many professional traders are still cautious about opening leveraged long positions.
Objective positive factors
Although Bitcoin has once again fallen below $60,000, it has still risen by about 40% year-to-date. Ryan Rasmussen, an analyst at cryptocurrency asset management company Bitwise, remains optimistic about future trends, stating that the current pullback is just a common shakeout in a bull market.
Will Bitcoin rise with the Fed's interest rate cut?
In fact, since last week, the cryptocurrency market has experienced a roller-coaster ride following Federal Reserve Chairman Powell's speech.
On August 23, local time, Federal Reserve Chairman Powell announced at the "Global Central Bank Annual Meeting" that "the time for policy adjustments has come," and The Wall Street Journal called this speech "the strongest signal of a rate cut so far."
Powell abandoned the vague expressions used in the past, such as "wait and see," "reevaluate," and "gradual," clearly conveying a signal: the rate cut cycle has officially begun, and the market no longer needs to speculate! He also believed that the US economy is growing at a "healthy pace," and his confidence in inflation falling to 2% has increased, alleviating concerns about economic recession. He did not mention "gradual" rate cuts, leaving room for more significant policy adjustments.
Following this statement, the cryptocurrency market began to rise rapidly, with Bitcoin rising from around $60,000, briefly reaching the $65,000 mark that day. After a brief adjustment, it broke through the $65,000 mark on August 26, and other cryptocurrencies followed a similar trend. At the same time, $251 million flowed into the Bitcoin spot ETF on the last Friday.
However, Bitcoin then began to oscillate and fall back, until the accelerated decline today. Institutional analysts believe that major tokens are digesting the boost they received last week from Powell's hint of a rate cut, and the market has entered a period of calm after the initial reaction.
Although there may be short-term price fluctuations, historical data shows that during a rate cut cycle, Bitcoin often experiences a longer-term upward trend. This is because rate cuts usually bring increased market liquidity and a weaker US dollar, enhancing Bitcoin's attractiveness, especially as a hedge against inflation and a safe-haven asset.
In summary, although Bitcoin prices may continue to fluctuate in the short term, the Fed's rate cut cycle is expected to provide support for Bitcoin in the long term, driving its price to further rise in the coming months.
Bull market boost from the BTC halving cycle
The Bitcoin halving cycle refers to the event of halving the mining rewards on the Bitcoin blockchain approximately every four years. This design aims to gradually increase scarcity by reducing the supply of new bitcoins, thereby curbing inflation and ensuring the long-term value of Bitcoin.
Historical data shows that after each Bitcoin halving event, the market typically goes through several stages of reaction.
First is the period of price stability, during which the market gradually adapts to the new supply level. Subsequently, as Bitcoin's scarcity increases and demand rises, prices usually experience significant increases. For example, after the halvings in 2016 and 2020, the price of Bitcoin surged from thousands of dollars to historical highs.
It has been over 115 days since the fourth Bitcoin halving, and it can be confidently said that the anticipated parabolic rebound is imminent. According to popular cryptocurrency analyst PlanB, based on the stock-to-flow (S2F) model, the price of Bitcoin is expected to peak in 2025.
From a technical perspective, despite a recent death cross, the Bitcoin price has consistently remained above the daily 50 and 200 moving averages (MA). Since the crash on August 5, the daily relative strength index (RSI) has once again exceeded the 50% level, indicating a significant recovery of bullish control.
An analyst predicts that by the end of this year, the price of Bitcoin may reach $150,000, but other indicators suggest an increase in short-term selling pressure.
As a result, Bitcoin may be on the verge of entering what one analyst calls a "crazy season," and by the end of this year, the price of Bitcoin may soar to $150,000—although others believe that short-term overselling may weaken the upward trend.
RealVision analyst Jamie Coutts stated in a post on X on August 26 that the price trend of Bitcoin is likely to enter a "crazy season" unless there is a fundamental change, also known as the banana zone.
This term was coined by RealVision founder Raoul Paul, and the "banana zone" refers to a phase in the Bitcoin market characterized by extreme volatility and frenzied surges, where prices may rapidly soar but also come with high instability and unpredictability.
In the attached chart, Coutts points out that in the previous two bull market cycles, Bitcoin reached historical highs within 365 days after reaching its peak in the local dollar index. He suggests that if BTC follows the previous bull market pattern, its price may increase by over 100% from around $64,000 to reach $150,000 by the end of this year.
If the Bitcoin halving cycle in 2024 coincides with the Federal Reserve's interest rate cut cycle, this could create a powerful dual driving force for the price of Bitcoin. On one hand, the halving event will reduce Bitcoin's supply, and on the other hand, interest rate cuts usually increase market liquidity, driving demand for high-risk assets. This combined effect could lead to a strong rebound in the Bitcoin market, possibly even doubling the price in the months following the halving.
This combined effect was evident after the 2020 halving cycle when the Fed's loose monetary policy combined with the Bitcoin halving led to Bitcoin reaching unprecedented heights in 2021, with a peak close to $69,000.
Potential Risks
Although the Fed's interest rate cut is likely to provide strong upward momentum for the price of Bitcoin, historical experience suggests that rate cuts do not always directly lead to an increase in the price of Bitcoin. In fact, during the Fed's last rate cut cycle in 2019, Bitcoin's performance was not as optimistic as expected.
At that time, Bitcoin rose from around $3,000 at the end of 2018 to $14,000 in June 2019. This rally occurred when the Fed's interest rates were slightly above 2%. However, after the Fed actually began cutting rates, the price of Bitcoin did not continue to rise but instead fell by over 40% from July 2019 to the end of the year.
Despite the central bank's rate cuts, which theoretically should increase liquidity and support the prices of high-risk assets, Bitcoin still experienced a significant decline, indicating that rate cuts do not always benefit Bitcoin.
In addition, many analysts and Bitcoin derivative traders believe that there is significant selling pressure on Bitcoin in September, primarily from profit-taking and portfolio adjustments.
September is usually the month when investors reassess their portfolios, especially after experiencing a period of market downturn during the summer. Many investors may choose to take profits in September, especially in high-risk assets like Bitcoin. This behavior can lead to significant selling pressure in the market, thereby lowering prices.
Furthermore, in a more cautious market sentiment, investors may adjust their portfolio structures to reduce exposure to high-risk assets. This adjustment may also exacerbate selling pressure on Bitcoin, further driving prices down.
What Should Ordinary Investors Do
The short-term volatility in the Bitcoin market can be extremely intense, but in the long run, the price trend of Bitcoin is usually more stable. Investors should focus more on long-term trends rather than being disturbed by short-term fluctuations. If you are optimistic about the long-term prospects of Bitcoin, you can gradually increase your position when the price falls, instead of rushing to buy or sell all at once.
In the current highly volatile market, investors should avoid putting all their funds into Bitcoin or any single asset. Diversifying investments is an effective way to reduce risk. By diversifying investments across different asset classes, such as stocks, bonds, gold, and other cryptocurrencies, investors can reduce the impact of price fluctuations in a single asset on their overall investment portfolio.
Therefore, it is recommended to use a multi-asset trading tool like BiyaPay, which allows investment in Bitcoin as well as US stocks/Hong Kong stocks. It supports the exchange of BTC and USDT into US dollars, Hong Kong dollars, and other fiat currencies, as well as withdrawal and remittance to bank accounts or brokerage firms such as JPMorgan and Interactive Brokers. You can also stay informed about market changes on BiyaPay and manage risks effectively. In the current market environment, diversifying risks is particularly important, as the price volatility of Bitcoin is high, and significant fluctuations in a single asset may have a major impact on an investor's overall financial situation.
Despite the Bitcoin market facing certain volatility and risks, especially the potential selling pressure in the short term, the bullish factors still dominate the market outlook in the long run. The expectation of the Fed's interest rate cut combined with the upcoming Bitcoin halving cycle in 2024 may provide a strong dual driving force for the market. These factors are expected to promote the rise of Bitcoin and attract more investors into the market.
However, while enjoying the potential benefits brought by these bullish factors, investors should remain cautious. The future of Bitcoin, although accompanied by challenges, is also filled with promising prospects.
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