Crypto Went Into Free Fall (Here’s What Caused It, and Where We’re Headed)

TL;DR

• Two key narratives (Germany selling BTC and Mt. Gox repaying creditors) caused the market to dump, but there’s not much liquidity left to be swept below current prices, so the market should stabilize over the coming week(s).

Full Story

If you’ve ever seen Chevy’s uncle Frank eat scallops, you’ll know it’s a sight to be seen.

At every turn you’re thinking “There’s no way he can inhale another plate” — but alas, Frank always finds room…until his wife Miriam inevitably has to step in, tell him he’s embarrassing her, and waddle him to the car.

Watching the crypto market dump over this past week has felt akin to Frank eating scallops.

Bitcoin’s price dipped below $60k on Thursday, then down to $56k, before bottoming out at $53.5k last Friday, taking the rest of the market down lower with it.

(And at every step down, we’ve thought “surely it can’t go lower”…)

Here’re the narratives driving the sell off:

• The German government has started selling its stash of ~$2.2B worth of Bitcoin.

• 127,000 creditors are about to be repaid the Bitcoin they lost in the Mt. Gox exchange collapse of 2014.

• On top of that, the summer months usually see lulls in market movements and there’s still no solid statement from the Federal Reserve on when they might lower interest rates.

Here’s the opportunity being leveraged:

The big dogs that have the wealth to move markets (aka ‘market makers’) recognize the selling events that these narratives are likely to trigger, and choose to amplify them (when there’s money to be made).

The money to be made here is mostly in the loans that people took out to buy more crypto, back when Bitcoin hit ~$56k a few months back — and once prices started dipping below $60k, they saw their opportunity.

Cause if market makers sell huge chunks of Bitcoin, they can help to:

Push prices down → force these loans to be repaid → which requires people to sell their Bitcoin → which pushes prices even lower.

…at which point, market makers can buy back in at a heavily discounted prices.

(This is known as a ‘liquidity sweep’).

It’s a complex method of ‘buying low, and selling high,’ and as convoluted as it is — it works!

Good news is:

There’s not much liquidity (loans) left to be swept below the current price.

So the market should stabilize over the coming week(s) and hopefully start to recover.