- Bitcoin’s sharp decline likely started with macro catalysts, and accelerated on liquidations of leveraged long positions on exchanges.
The initial drawdown appeared related to macro factors. Prior to the last two trading days, bitcoin had remained in a narrow range of roughly $29-30k, despite widespread weakness in global asset markets. Both equity and bond markets have sold off this month due to, in our view, concerns about China’s economy and pressure on bond markets from wide budget deficits and the Fed’s quantitative tightening. We suspect that the synchronized selloff in equities and fixed income eventually spilled over into crypto as crossover investors reduced portfolio risk (Exhibit 1).
Exhibit 1: Selloff began before crypto-specific news; likely triggered by macro catalysts
Exhibit 2: Drop in prices triggered liquidations of leveraged longs
Although we see a variety of positives for the digital asset industry over the coming months, the macro markets backdrop remains challenging and may continue to be a source of price volatility.
1. Based on 5pm closing price on August 16 to mid-morning prices on August 18. Source: Bloomberg.
2. Source: Glassnode.
3. Source: Bloomberg.
4. “SEC Set to Greenlight Ether-Futures ETFs in Crypto Industry Win”, Bloomberg, August 17 2023.
5. Source: Bloomberg.
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