The cryptocurrency market experiences another slide in August

Photo of author
Written By Charlotte Miller

Bitcoin is the most well-known cryptocurrency in the world, and over the years, it has become an integral part of the investment portfolios of both individual as well as institutional investors. While 2022 saw many leaving the community due to the shift in prices that caused BTC to lose much of its value, 2023 ushered in a new beginning. Users started to buy Bitcoin with bank transfer in order to add it to their list of holdings and diversify their assets. The imminent bullish run was also seen as a good reason since the prices were expected to climb swiftly and quite suddenly.

However, none of these predictions came to pass. In fact, the opposite thing happened, and prices began dropping once again after a long period of stagnation. This is anything but good news for BTC users, who find the market uncertainty to be detrimental to their strategies since it’s challenging to know which path to take when there’s no way to determine where the market is headed.

Continuous drop 

The digital finance environment doesn’t seem to continue its growth anytime soon after Bitcoin fell by 8% on Thursday, August 17th. This onslaught reversed the gains BTC recorded since June in a single day. The price point of some tokens momentarily fell as low as $25,409 before undergoing partial recovery and returning to higher values. This event occurred just as reports showed that SpaceX wrote down the price of its crypto holdings to $373 million over the past two years.

Later, the company sold its cryptocurrency. The fact that an Elon Musk venture is at the center of discussion in the crypto environment is nothing new. Back in 2021, Tesla briefly considered accepting crypto payments for its electric cars. The company also sent the Bitcoin price higher following a 1.5 billion investment. The digital coin was propelled by 15% in just twenty-four hours after Elon Musk announced the plans to include crypto as part of the Tesla payment scheme, then, three months later, when he announced that the project won’t come to materialize, there was an immediate and sharp value reversal.

Last year, Tesla saw losses of approximately $204 million related to impairment linked to its BTC holdings. The current plunge in the Bitcoin value is the apparent continuation of the past few months that have been quite stressful for the digital asset marketplace. US regulators have been hard at work, looking to create comprehensive regulations specifically designed for the environment. According to lawmakers, the cyber finance space has the potential to become filled with scams and fraudulent activity if it continues as it had until now.

The fact that cryptocurrencies continue to be quite volatile, frequently registering much more considerable fluctuations compared to stocks or bonds. While these two asset classes have also fallen since the interest rate continued to rise, ultimately achieving its highest level in the last twenty-two years, there’s still room for increases down the road.

Different perspective 

However, for others, SpaceX activities have nothing to do with the state of Bitcoin at the moment. According to this theory, the price slide was caused by traders’ massive selling actions, all of which were based on several different catalysts. $1 billion in crypto futures was liquidated, a 14-month high level. Alongside the SpaceX sale, the Chinese property developer China Evergrande was also blamed for the fall, given its recent announcement of bankruptcy.

Some research suggests that blaming either isn’t either fair or correct. Asset write-downs, such as the one at SpaceX, are frequent among businesses, as they help manage taxes much better. So far, the company hasn’t even officially confirmed the sale of its cryptocurrency, so it remains uncertain how much exactly it still holds.

What happened? 

The liquidations and market structure were the most likely reasons for the sudden drop. As usual, events in the crypto world are more complex than they appear at first glance and are typically the result of a combination of factors rather than a single, fundamental thing. The Bitcoin marketplace has been mostly illiquid for quite some time now, and its relative flatness has created the perfect conditions for rapid and mostly uncontrollable movements.

As prices go lower, long traders must sell their positions to bypass liquidations. That contributes to building the selling pressure, creating a continuous loop of sliding fees and covering long placements. The climbing interest rates in the United States appear to have been a reason as well. As Bitcoin continues to approach traditional markets, it becomes more vulnerable to changes in the conventional economic landscape.

These movements are generally associated with bearish risk assets, and if the trend continues, it’s quite possible that the negative price will move on into the last weeks of August, and perhaps even later into the fall. Data shows that there’s been an increase in the funding rates of short traders, meaning that it’s unlikely the price will break through the bearish sentiment over the next few days.

Funding rates 

The funding rates are payments performed occasionally. Covered by traders, they are based on the price difference between spot markets and futures. Investors can receive or pay funding depending on their chosen position. This process ensures that both sides of the trade will always benefit from participation. Higher rates can create volatility since users will be incentivized to be on either side of the market. Movements in both marketplaces will benefit from an increase.

The definitive ruling on the ETFs is still widely anticipated. While it was expected on August 13th, SEC regulators recently announced that there had been a postponement. Investors and companies can now expect an official decision in March 2024. Until then, it’s quite probable that the market will continue to record fluctuations.

Although Bitcoin has recovered since the beginning of 2023, there will still be some time until it returns to its previous levels. In the meantime, investors must remain cautious and observant and avoid making any rash decisions that could cost them quite a lot of capital in the long run.