What Caused Bitcoin’s 10 Percent Crash: Matrixport Jim Cramer? Leverage?
Bitcoin fell nearly 10% in the early hours of Wednesday, around the same time that Matrixport issued a contrarian forecast that said the SEC will reject all spot BTC applications this month.
In an interview, a K33 research analyst said the decline was likely caused by a “typical leverage flush” when the market is overheating rather than individual views.
Bitcoin’s rapid decline on Wednesday reminded investors of the asset’s downward volatility. Observers were quick to point to a report predicting rejections for the much-anticipated spot BTC exchange-traded funds in the US and even comments from CNBC’s Jim Cramer as possible triggers. Analysts told AskFX that overly optimistic bets on a sustained rally have primed the market for a pullback.
BTC fell from $45,000 to a low of $40,800 in a matter of hours, according to data from AskFX Indexes. This came around the same time that Singapore-based digital asset firm Matrixport published a report written by Markus Thielen predicting that the US Securities and Exchange Commission would reject all spot Bitcoin ETF applications would. This is a reversal from his forecast from Tuesday, which predicted an impending approval and a BTC rally to $50,000.
Jihan Wu said that the report was not the cause of the crash. He also pointed to weakness in crypto stocks in recent days that could indicate a downtrend in digital assets.
Wu wrote on X late Wednesday afternoon UTC: “It is unrealistic to think that a Matrixport report could cause a trillion dollar market crash.”
Price drop in crypto stocks while the value of Bitcoin remained stable.” These events before Markus Thielen’s report seemed to have a smaller impact and received less attention.
Analysts refuted Matrixport’s contrarian argument, saying there was no evidence regulators would reject the applications and citing higher chances of eventual approval. Bitcoin price recovered from its Wednesday low to $42,900 in afternoon UTC, but was still down nearly 5% in the last 24 hours.
bewildering note from matrixport
several of their supporting arguments are nonsensical
3 of their most confusing & questionable claims:
👉🏼 that the bull run was kicked off by franklin templeton’s september ETF filing. they write: “there was now more than one big traditional…
— Alex Thorn (@intangiblecoins) January 3, 2024
CNBC host Jim Cramer, a former hedge fund manager who previously expressed a negative opinion on Bitcoin in October, commented positively on the currency within a day. Although unlikely, many observers see his comments as a sign of falling prices. They did this by faking a meme about Cramer’s internet-famous record of bad decisions. BTC, for example, is still up about 60% since Cramer’s October comments.
Vetle Lunde, senior analyst at K33 Research, said the market is overheated and heavily leveraged.
This makes it very vulnerable to drawbacks. Lunde explained in an email interview: “Before the crash, the debt in the market was high. Long positions were the main aggressors, as evidenced by funding rates, futures premiums and annual interest rates above 50%,” he said. This made the market very vulnerable to volatility.
Matrixport’s divergent report from consensus was a catalyst for the unwinding of overleveraged trades, leading to a cascading flood of liquidity and exacerbating the decline. CoinGlass data shows that nearly $560 million has been lost since Wednesday in leveraged derivatives trading positions that were bets on higher prices using borrowed money. According to CoinGlass, this is the largest loss in at least three months.
Lunde stated that “it is a long liquidation flush.”
Crypto derivatives liquidations surged on Wednesday, accelerating the price decline. (CoinGlass) CryptoQuant, a digital asset research firm, also attributes the decline to exceptionally high funding rates in the Bitcoin futures market. They add that selling pressure from Bitcoin miners as well as high profit rates from short-term investors are contributing factors.
Last week, CryptoQuant analysts said the approval of a Bitcoin spot ETF was likely and could be a “sell-the-news” event that could send BTC as high as $32,000.
Spot Bitcoin ETFs are still likely to be approved.
Joel Kruger of LMAX explained in an email that there is consensus that approving a Bitcoin ETF is “a matter of when, not if.”
K33’s Lunde took a similar view, stating that a rejection seemed highly unlikely given Grayscale’s court victory and the back-and-forth between the SEC, the issuers and the SEC that led to updated S-1s and cash creations.
