The overall cryptocurrency market has plummeted; what are the economic signals behind it?
The market predicted by Arthur Hayes has really appeared.Author: jk, Odaily Planet Daily
In the past 24 hours, the global cryptocurrency market has experienced significant price volatility. From the evening of April 12 to the early morning of April 13, the market capitalization of major digital currencies such as Bitcoin, Ethereum, and various smaller tokens generally declined. This sudden market turmoil has attracted widespread attention from market participants. Analysts are attempting to interpret the reasons behind this phenomenon, including possible external economic factors, policy changes, or a sharp shift in market sentiment.
Market Summary
From a macro perspective, the total market capitalization of cryptocurrencies has dropped to $253.79 billion, with a 24-hour decline of 7.3%. As of the time of writing, Bitcoin is currently priced at $66,814, with a 24-hour decline of 4.91%, and it once fell below $66,000; Ethereum is currently priced at $3,217, with a 24-hour decline of 8.16%, having briefly fallen below $3,100, with a maximum decline of 9.34%; SOL dropped below $150 before recovering to $151, with a 24-hour decline of 12.57%. Altcoins have seen even more severe corrections, with mainstream coins like MATIC, XRP, DOGE, BCH, etc., all experiencing declines of over 20%. The previously popular MEME coin BOME saw a maximum decline of over 50%.
Bitcoin's price trend in the early morning of April 13. Source: Coinmarketcap
According to Coinglass data, the total liquidation amount in the past 24 hours was $878 million, with long liquidations reaching $784 million.
Reasons Behind
In terms of market conditions, many are already concerned whether this is a sign of a bull market interruption. Currently, there are several different views regarding this sharp decline:
One view is that this decline is due to a correction before the Bitcoin halving. Several key reasons for a potential market correction and crash before the Bitcoin halving include:
First, as the block reward for Bitcoin mining will be halved, miners will receive fewer Bitcoins for the same amount of mining work. This potential reduction in income may force them to sell Bitcoin at the current relatively high prices to cover higher operational costs for the next quarter, increasing supply pressure in the market and thus lowering prices.
Second, the market's high expectations and speculative behavior regarding the halving event may have pushed prices up before the event, and once these expectations are not met, prices may sharply reverse. Moreover, if the market buys in large quantities too early before the event, any slight trigger close to the event could lead to massive profit-taking, resulting in a significant price drop.
Finally, based on historical patterns and psychological expectations, investors often guide their current market actions based on historical patterns. Given that past halving events have sometimes led to significant price increases, market expectations are high. However, if these expectations begin to seem overly optimistic, investors may start selling their holdings before the halving to take advantage of the current high prices, which could lead to a market decline.
Therefore, although the halving itself is a positive signal for Bitcoin, the uncertainty and speculation before the halving may lead to significant market volatility and price corrections.
From a macro perspective, the continuous tightening of the Federal Reserve's balance sheet has reduced the supply of dollars in the market. A decrease in dollar liquidity, especially in the global financial system, typically leads to a decline in the prices of risk assets, including stocks and cryptocurrencies. As the cryptocurrency market is highly sensitive to changes in liquidity, capital outflows may lead to sharp price drops. Additionally, when the market expects the dollar to become scarcer, investors may turn to more stable or traditional assets, reducing their investments in cryptocurrencies.
According to Arthur Hayes' viewpoint,
It is expected that the Bitcoin block reward will be halved on April 20. This is generally seen as a bullish catalyst for the crypto market. I agree that this will push prices up in the medium term; however, the price behavior directly before and after the halving may be negative. The narrative that the halving is beneficial for cryptocurrency prices is deeply ingrained. When most market participants reach a consensus on a particular outcome, the opposite often occurs. This is why I believe that Bitcoin and the general cryptocurrency prices will decline during the halving period.
Considering that the halving occurs during a time when dollar liquidity is typically tight, this will add fuel to the hot sales of crypto assets. The timing of the halving further reinforced my decision to pause trading before May. … Therefore, I chose to sell.
Price trends before and after the Bitcoin halving, Source: Grayscale
Despite the current uncertainty in the market, many investors and analysts remain optimistic about the long-term prospects of cryptocurrencies. They believe that this price adjustment may provide a good opportunity for long-term investors to enter the market. Each market adjustment is a test of investor sentiment and market trends, as well as a period for potential growth in the future.
