- by Garima Mohta
- 04th Sep 2020
Bitcoin price slips off, analysts cites various reasons:
On Thursday bitcoin prices tumbled 6.2%, falling below $11000 for the first time in a month:
The digital-asset market traders and analysts are scrambling to explain the sell-off which took place due to massive price drop trimming the largest cryptocurrency's 2020 rally to 50%.
The analysts cited certain reasons:
1. Bitcoin in sync with traditional markets:
After climbing to a new record earlier in the week The Standard and Poor's 500 index of large U.S. stock retreated on Thursday. According to the reports in the final week of August new U.S. job claims at 881,100 which is better than predicted and the lowest since the pandemic hit earlier this year. But still in 2009 the 665,000 was market as the high point of recession Pantheon Macroeconomics called the figure “still grim,” while Navy Federal Credit Union economist Robert Frick said the labor market was “continuing to struggle, and not showing improvement despite COVID-19 levels that declined in August.
According to John Todaro director of institutional research at the cryptocurrency analysis firm TradeBlock, said:
He predicted overlap between equity sellers and digital currency sellers. It is unclear if the largest equity market decliners such as tech stocks, including retail trading darlings, Tesla and the FAANG names [Facebook, Amazon, Apple, Netflix and Alphabet, once Google] will push into a continued broader which will result in a crash in equity markets and could put more pressure on digital currencies, or if it is just a short-term correction.”
2.DeFi unwinding being the cause of bitcoin pulled down:
Ethereum, the second-largest blockchain, where most of the speculative fervor in decentralized finance takes place or DeFi by traders. Their Prices for ether, the native currency of the Ethereum blockchain, tumbled 8.3% on Thursday after a 7.6% drop the prior day. Yet those price drops followed gains of 54% in July and 25% in August amid reports of eye-popping dollar amounts flowing into DeFi – especially with recently-launched projects like Compound, Yearn.Finance and SushiSwap – attracting attention from traders to the fast-growing and lucrative-but-risky pursuit of “yield farming.” In August the total value locked in DeFi was more than doubled to $9.5 billion but according to the website DeFi Pulse the amount has shrunk to $9.1 billion more in the past few days.
Denis Vinokourov, head of research at the crypto prime broker BeQuant, told CoinDesk in an email: “The explosive growth that decentralized exchanges (DEXs) and all things DeFi has finally reached levels that begin to impact on the sentiment across its centralized exchange (CEX) counterparts, with the sell-off triggered by a combination of stratospheric Ethereum fees. Also, an aggressive unwind of the very crowded trade across Uniswap token related positions in the wake of a number of tokens, namely PIZZA and HOTDOG, dramatically collapsed from $6,000 to $1 in a mere few hours. He cited this since the same assets are used aggressively to structure collateralized positions. Similarly to another DeFi heartthrob SushiSwap, these offerings were also Uniswap clones. DEX and DeFi trading is no longer a hobbyist activity and a number of firms that dominated CEX space have recently ventured out into DeFi to generate alpha. As such the Chinese wall that once separated markets is no longer in place and sentiment from one market will flow into another, and vice versa.”
3. Miners sold some of their bitcoin: Bitcoin miners and possibly traders decided to take risk off the table by trading in some of their cryptocurrency, which they receive as rewards to maintain the security of the blockchain network. According to Coin Desk report on Thursday blockchain data were showing elevated transfers of bitcoin to exchange wallets, typically seen as a precursor of heightened selling pressure. According to CryptoQuant, a blockchain-data analysis firm, tracking of major bitcoin-mining pools showed an increase in bitcoin being transferred out – ostensibly also to exchanges for a possible sale.
Ki Young Yu, founder of CryptoQuant, told CoinDesk in a Telegram chat: “Miners are good traders. I think they are just looking for selling opportunities, not capitulation. I think it’s going to be the war of miners between those who want a bitcoin price rally and those who don’t. Some Chinese miners already realize their mining profitability (ROI), and they might not want new mining competitors joining the industry because of the bull market.”