Editor's Note: This article analyzes the recent decline in the cryptocurrency market, the reasons for which are complex, including the Bybit hacking incident, the weakness of Ethereum, and the volatility of the stock market. Particularly in the context of reduced liquidity, the cryptocurrency market has lost some of its momentum. Although the market has corrected, this does not mean that a long-term bear market is coming. Technical corrections are healthy, and the cryptocurrency market still needs liquidity to continue to thrive.
The following is the original content (edited for easier reading):
Has the liquidity of cryptocurrencies suddenly disappeared? Since last Friday morning, the cryptocurrency market has lost $325 billion in market capitalization.
At 5 p.m. Eastern Time today, the market lost $100 billion in an hour, and there were no major news events.
What happened in the cryptocurrency market?
In the past 24 hours alone, we have seen about $150 billion in capital being liquidated from the cryptocurrency market. The sell-off has spread, and almost all cryptocurrency assets have experienced significant declines. Even the meme coin market seems to have lost a considerable amount of liquidity.
This all seems to have started with Solana, which has fallen 22% since last Friday. During the meme coin frenzy, Solana showed exceptional relative strength. However, as meme coins have gradually declined, Solana has also started to retreat. For a period, Solana's sell-off was largely independent of Bitcoin's performance.
However, as the S&P 500 index began to decline on Friday, Bitcoin also started to follow suit. As shown below, the decline in the S&P 500 has accelerated the sell-off in Bitcoin. Now, after breaking below the $98,000 support today, Bitcoin has lost its relative strength.
This is quite strange, happening just after Citadel made a significant shift in its cryptocurrency stance. Today, Bloomberg reported that Citadel Securities, a $65 billion company, is seeking to become a liquidity provider for Bitcoin and cryptocurrencies, and the market is treating this news as a "sell the news" event.
It seems that the Bybit hacking incident on February 21 also impacted market sentiment, with Arkham Intelligence calling it "the largest financial heist in history." The closest competitor was the theft of $1 billion from the Central Bank of Iraq in March 2003.
In fact, the loss from the Bybit hacking incident is more than twice the size of the second-largest cryptocurrency hacking event in history, the $611 million theft from PolyNetwork in August 2021. The weakness of Ethereum has also put greater pressure on the entire cryptocurrency market, and the hacking incident has undermined market confidence.
The technical aspect also seems to have lost momentum, but this does not mean that the cryptocurrency market is about to enter a long-term bear market. In this bull market, we have seen numerous Bitcoin corrections of over 10%, and technical corrections are healthy.
Worse still, Sam Bankman-Fried has returned to the X platform, and amid the cryptocurrency market crash, SBF expressed "sympathy for government employees." This is happening as DOGE and Elon Musk prepare for more large-scale layoffs in the federal government.
Finally, with the return of stock market volatility, risk assets like Bitcoin have experienced a correction. We have seen historical levels of risk appetite in 2024 and as we enter 2025. The pullback in risk appetite means a reduction in liquidity in the cryptocurrency market, a situation that has certainly occurred before.
In summary, there is no single factor driving the decline in cryptocurrencies, but rather a combination of factors that have led to a reduction in liquidity, and the cryptocurrency market needs liquidity to thrive.
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