Crypto Market Drawdown: Will We See New Lows This Year? | Weekly Digest

August 21, 2023

Welcome to another Crypto Weekly Digest brought to you by VirtualBacon.

In this edition of our newsletter, we deep-dive into the recent turbulence that swept across the crypto landscape. We explore the catalysts that might have stirred this week's market downturn. We'll then shift our focus towards the European horizon with the launch of new ETFs and discuss the earmarked dates for the U.S. ETFs — but could there be delays on the horizon? Wrapping up, we'll provide a sharp overview of the current market sentiment, highlighting both the standout and underperforming coins of the week, and a concise analysis of key cryptocurrencies and the forces shaping their trajectories.

Market Meltdown: Unraveling the Sudden Crash

In a sudden turn of events late on Thursday, Bitcoin's plunge triggered a cascading effect on both futures and spot markets. From $28,500 on Binance, Bitcoin nosedived to $25,000 within 24 hours, leading to a devastating 14% drop for significant tokens such as Litecoin (LTC). This tumult resulted in a staggering $1 billion in crypto futures being liquidated — the highest in 14 months.

Both Bitcoin and Ethereum reached two-month lows on Aug. 18, leading to massive liquidations impacting thousands of derivative traders. As per CoinGlass, 176,752 traders faced liquidation within 24 hours, with 90% occurring in a mere 12-hour span.

This chain of events marked the most significant liquidation episode since the FTX collapse eight months ago.

Now, let's take a look into the potential triggers behind this sudden downturn.

SpaceX's Bitcoin Saga

Rumors swirled as a Wall Street Journal report suggested Elon Musk's SpaceX significantly wrote down its Bitcoin holdings, leading to a speculated sale.

The news saw Bitcoin's value plummeting nearly 10%. This turbulence mirrored Tesla's previous Bitcoin transactions. Following the WSJ report, the price of bitcoin plunged about 8% to about $26,500. The price of bitcoin is down 11% over the past week, trading at levels last seen in mid-June.

However, contrary claims emerged, casting doubt on SpaceX's alleged crypto dealings, asserting the lack of concrete evidence to confirm the sales.

Consequently, the role of these unverified reports in influencing the market downturn remains ambiguous.

Fed's Hawkish Tilt

The U.S. Federal Reserve's recent minutes have stirred unease within the cryptocurrency sector. The report highlighted concerns over domestic inflation and hinted at potential future interest rate hikes.

As a consequence, Bitcoin and Ethereum saw sharp declines, with the former slipping below $29,000 and the latter struggling to sustain the $1,800 mark. The Fed's inclination towards a stricter monetary policy has been a dominant factor dampening the momentum of risk assets like crypto.

CME's FEDWatch tool also pointed to a rising trader expectation of more hikes. This tightening stance can pose challenges for growth-oriented assets while redirecting investments towards stable alternatives.

Liquidity Crunch

BTC's price faced significant pressure due to waning liquidity, evident from its 8% loss in a single daily candle. Derivatives markets witnessed a flurry of liquidations, especially on Deribit, hinting at a major account being liquidated.

With the scale of liquidations reminiscent of the fallout from the FTX exchange debacle in 2022, many have highlighted the drying liquidity trend, which is becoming a growing concern in the crypto market.

It's plausible that no singular event was solely responsible. Instead, the convergence of SpaceX rumors, hawkish Federal Reserve stances, and a liquidity squeeze might have jointly intensified market anxieties. While many anticipated a Bitcoin correction, the simultaneous unfolding of these factors prompts the question: Was it merely coincidental or a perfect storm of compounding pressures?

Now, turning our attention to another monumental development in the crypto sphere, let's delve into Europe's landmark unveiling of its first ETF.

Europe Takes the Lead: Launching the First Spot Bitcoin ETF

As the crypto world shifts and adapts, Europe steps into the spotlight, launching its first spot Bitcoin ETF, even as the U.S. lags despite numerous applications.

London's Jacobi Asset Management recently listed the Jacobi FT Wilshere Bitcoin ETF on Euronext Amsterdam. While originally approved in 2021, the firm postponed its launch due to challenges in the digital asset market, like the Terra ecosystem collapse and the FTX crypto exchange bankruptcy.

Europe's bold move precedes the U.S., which, despite countless SEC applications, hasn't greenlit a single spot Bitcoin ETF. Yet, with BlackRock spearheading new applications featuring surveillance-sharing agreements, hope is kindled.

However, recent SEC delays hint at a lengthier wait for a U.S. Bitcoin ETF decision.

Given the SEC's ability to extend the review period for crypto ETF applications up to 240 days, certain firms might not receive a verdict on their July 2023 submissions until March 2024. Let's explore the probable timelines and anticipated decision dates for these spot ETF applications.

The most recent ETF filings from this year are expected to utilize the full 240-day window before receiving a decision on approval or denial. Considering the current filing dates:

  • Arc 21 Shares Bitcoin ETF was filed on May 15th, putting its decision date around January 10, 2024.
  • Subsequent applications from Blackrock and other major institutions were filed between July 19th and 21st. This places their decision deadline between March 14th and March 19th, 2024.

Given this, it's realistic to anticipate potential approvals (or rejections) of Bitcoin spot ETFs around mid-March 2024. Any updates prior to these dates should be taken cautiously, as they might either come from less influential entities or represent applications that haven't yet exhausted the full review window.

In light of Europe's inaugural Spot Bitcoin ETF, it's evident we're edging closer to a U.S. counterpart. This development boosts confidence in a forthcoming U.S. approval. As we navigate the next seven months, anticipate a surge in ETF speculations. Amidst the influx of information and misinformation, it's vital to stay discerning and focus on the concrete deadlines, rather than getting swayed by daily conjectures.

Best Performing Coins of The Week

Worst Performing Coins of The Week

Altcoin Events

THORchain ($RUNE)

We begin our overview with RUNE, a coin that has experienced an impressive 42.9% rally over the past week.

RUNE soared from lows of $0.90 to nearly $1.60. Driving this surge are THORChain's innovations, such as streaming swaps optimizing trading, and multi-chain expansions, recently integrating perps on Hyperliquid DEX.

Still, while investor sentiment remains high, there are concerns about RUNE's long-term momentum; its current valuation might suggest overextension. Furthermore, THORChain's latest reveal, the THORFi Lending protocol, adds a fresh dimension to its suite, albeit with challenges in the competitive DEX landscape.

Hedera ($HBAR)

The second coin we will look at is HBAR. While its weekly gain stands at just 4.2%, notable news released during the week led to its strong performance over several days.

The game-changer was Dropp, powered by Hedera Hashgraph, joining the Federal Reserve's FedNow "showcase." This micropayments platform enables penny transactions and ensures user confidentiality.

Following this, HBAR's token rose sharply by 16%, hitting a four-month high of $0.0659. Though a promising sign, the Federal Reserve has stated this inclusion doesn't mean endorsement, reflecting the cautious bridge between traditional finance and blockchain.

Bone ShibaSwap ($BONE)

The third and final coin we will look at is Bone ShibaSwap, a coin that experienced a 28.5% drop over the past week.

The anticipated Shibarium Network's launch, intended to boost meme coins like SHIB and BONE, unfortunately, backfired. Amid the chaos, around $1.7 million in ETH remained trapped within the Shibarium Bridge.

Although BONE saw a decline to $1.27, an interesting observation is SHIB's Daily Active User count surging by 37.73%. While the sentiment remains cautious, there's potential for recovery as users adjust to the new dynamics.

In this issue, we delved into the recent market tremors and explored potential catalysts behind the downturn. Simultaneously, Europe's Spot Bitcoin ETF introduction illuminates a potential path for a U.S. debut, instilling hope amongst investors. As always, different altcoins have their ups and downs. From my point of view, big changes are coming for crypto, and it's an exciting time to be involved. Let's stay alert and hopeful as we journey through these interesting times together.


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