Crypto Crash: Bitcoin Under $6,500 Again; Manipulation, Accumulation or Cleanse?

The crypto market crashed today, with Bitcoin losing over 12% and the market cap as a whole dropping nearly $39B. We discuss possible reasons and the big picture.

Bitcoin lost over 12% in the last 24 hours to drop from around $7,380 yesterday to $6,412 today, initiating another crypto crash, with top coins like Ether, Bitcoin Cash, EOS, Litecoin, Cardano and Monero losing nearly 20% in the same period.

Crypto Crash

Why is the crypto market crashing again?

After a rough August, Bitcoin and the crypto market as a whole seemed to be on a course to recovery, backed by positive sentiment and interesting developments. However, the upside appears to be short-lived as the market cap dropped from nearly $239B to $200B in the last 24 hours.

One of the recent setbacks which may have fueled a speedy decline was Goldman Sachs’ decision not to pursue a crypto trading desk in the face of regulatory uncertainty surrounding the digital assets.

This was an important driver for the market given how the recent recovery came at the back of optimism surrounding U.S. SEC’s regulatory measures and the involvement of reputable institutions such as Goldman Sachs, Nasdaq, CBOE and the Intercontinental Exchange.

The approval of a Bitcoin ETF has been a major point of contention for the cryptocurrency market, and even though the SEC rejected several proposals last month, the price did not tank as much, due to the regulator’s willingness to reconsider, and positive sentiments around the VanEck ETF proposal, which is awaiting a decision at the end of this month. Goldman Sachs’ decision to step back now may send a signal that crypto is not yet ready for mainstream finance, worrying investors.

What is the big picture?

Another factor to note here is the expiration of CME’s BTCQ18 futures contract on August 31, which was followed by a price surge, taking Bitcoin from around $6,850 to $7,380. The settlement for that contract was due for today, September 6, and what we are seeing now is also likely to be part of a bigger trend, where the futures market is used to manipulate Bitcoin price.

Futures contracts have always been aimed at increasing liquidity and decreasing volatility, which was also evident as August recorded the lowest volatility in Bitcoin futures contracts since they started in December (chart below shows monthly volatility for CBOE’s XBT).

XBT Volatility

Such reduced volatility and high liquidity allow large investors to remove retail traders from the picture on the swings, and increase their own holdings via accumulation, and if an ETF proposal does get approved anytime soon, these investors stand to gain the most.

However, we cannot discount the fact that the market as a whole, is still fueled majorly by speculation and promise of future delivery, without much tangible, let alone sustainable progress.

There is a definite need for clear regulatory measures for crypto and a shift of focus from fizzling, hype-powered price rallies towards developing real-world use-cases and sustainable products which solve problems, and every crypto crash is, in reality, driving us towards such a cleansing.