Shaken, not stirred
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Crypto investors were woken from a euphoric haze on Tuesday as Bitcoin delivered a sobering splash of water, shedding $10k in a matter of hours. Having breached the $50k mark over the weekend, the number one crypto failed to hold $52k, retracing briefly to $42k before landing in the mid-$45k range.
Even in a market as volatile as crypto, drawdowns of this significance are a relatively rare event. Evaluating Bybt’s liquidation data, its clear that Tuesday marked the largest such correction since the market-wide crash of 19 May. This week, investors saw $3.2Bn in longs liquidated in 24 hours.
Why now?
Large-scale liquidations often arise in a confluence of climactic events. While pinpointing exact causes is guesswork at best, several prominent factors likely played a part.
Tuesday, by all intents, was earmarked as a bumper day in BTC’s calendar, with El Salvador slated to officially begin the use of Bitcoin as legal tender. Christened “Bitcoin Day”, the country’s government offered to give each citizen $30 in BTC, provided that they download the State’s native Chivo wallet. Market optimism waned, however, as Salvadorian president Nayib Bukele announced temporary wallet outages due to surging network activity.
The adage “buy the rumour, sell the news” springs to mind, as what followed was a $400Bn drop in crypto’s total cap from a four-month-high of $2,4Tn. Bukele, however, was seemingly unfazed. The young leader ruffled the feathers of his chief detractors, the International Monetary Fund (IMF), with a brazen tweet fired off mid-crash.
It appears the discount is ending 🥲
— Nayib Bukele 🇸🇻 (@nayibbukele) September 7, 2021
Thanks for the dip @IMFNews. We saved a million in printed paper.
El Salvador now holds 550 bitcoin.#BitcoinDay #BTC 🇸🇻
Bitcoin Day concluded with another concerning announcement, as the SEC began an investigation into US-based exchange Coinbase (COIN). Coinbase, the world’s third-largest crypto exchange by volume, has attracted unwanted attention from regulators as the firm gears up to launch Coinbase Lend, a lending feature that allows customers to earn yields on invested tokens. Coinbase CEO Brian Armstrong was quick to defend his company’s conduct, pointing out inconsistencies in the SEC’s enforcement and ambiguous legislation in an exhaustive Twitter thread.
Dominance
While BTC’s sudden retracement erased double-digit gains for many alts, resilience among some tokens, particularly novel Layer-1s, has seen dominance fall to the cusp of 40%, lows not seen since May. Solana (SOL), the shining star of recent weeks, seems to have missed the bearish memos altogether, climbing almost 50% this week to capture 2.8% of crypto’s total market share. It’s worth noting that BTC’s dominance has not broken below 40% since early 2018, when the term “alt season” first found its way to the mainstream.
Tradingview.com
September outlook
As BTC hovers indecisively in the $46k region, one can’t help but wonder if crypto dominance is undergoing a transformation of sorts, as protocols with increased utility vie to compete in the emerging arenas of DeFi and NFTs. Even if this is the case, however, BTC’s macro influence still dictates the flow of crypto in no uncertain terms. Beyond the industry’s regulatory tug-of-war, September has historically been a bearish month for BTC, generally preceding strong gains through Q4.
With emotions running high, and leverage running even higher, Tuesday’s flash-crash starts to look less like an anomaly, and more like a healthy reset of sentiment and risk appetite. Even the Stock-to-Flow model, which stills calls for an end-of-year run above $100k, accommodates a September dip in this equation.
Lookintobitcoin.com / @PlanB
Whether September delivers more declines remains to be seen, but in times like these it’s important to remember that even mountain climbers need to stop to catch their breath, especially at rarified heights. Except that in the context of nascent trillion-dollar markets, deep breaths sometimes entail billions of dollars in volatility.