After a series of hacking incidents, the market sentiment has also plummeted to the freezing point, and this morning, Bitcoin suddenly crashed, briefly falling below $91,000, with $952 million in liquidations across the network in the past 24 hours, of which $884 million were long liquidations and $68.55 million were short liquidations. Additionally, in the past 24 hours, a total of 316,443 people were liquidated globally, with the largest single liquidation occurring on BitMEX - XBTUSD worth $10 million.
According to Alternative data, the cryptocurrency Fear and Greed Index has dropped to 25 today (49 yesterday), and the market sentiment has shifted from neutral to extreme fear. Recently, BlockBeats has compiled the market reasons for the sudden drops in the price of Bitcoin, which are provided for readers' reference.
IBIT Mass Liquidation
BitMEX co-founder Arthur Hayes tweeted this morning that the Bitcoin flash crash is related to the IBIT hedge fund. Many $IBIT holders are hedge funds that are long ETFs and short CME futures to earn higher returns than their investments in short-term US Treasuries.
If the basis declines as $BTC falls, these funds will sell $IBIT and buy back the CME futures. These funds are in a profitable position, and given that the basis is close to the US Treasury yield, they will unwind their positions and realize profits during the US trading session, and Bitcoin may fall back to $70,000.
Previously, Arthur Hayes had published a blog post expecting that due to the lack of fundamental changes in US politics despite Trump's election, the price of cryptocurrencies could fall back to the level of Q4 2024.
Therefore, Arthur Hayes still believes that Bitcoin will retest the $70,000 to $75,000 range. Only if the Federal Reserve, the US Treasury, Japan, or others print money in some form, or enact specific legislation allowing permissionless cryptocurrency innovation, can the current market conditions be improved.
The Bitcoin strategic reserve policy is very poor, "the fundamental problem with governments hoarding any asset is that they buy and sell assets primarily for political, not financial, interests." This policy may change with political changes, thereby altering Bitcoin's original trend.
Related reading: Arthur Hayes' New Article: Beyond Bitcoin's National Reserves, the US Crypto Hegemony Has Other Intentions
Delayed Expectations of Bitcoin Strategic Reserves
Trump's plan for a Bitcoin strategic reserve has been delayed, and market confidence has been eroding. In a recent tweet, Arthur Hayes mentioned that the fundamental problem with governments hoarding any asset is that they buy and sell assets primarily for political, not financial, interests. Those who are building truly decentralized technologies and applications do not have enough financial power to play politics at critical moments in this cycle. Therefore, the desire for cryptocurrency regulation may be realized, and if it does, it will be in an overly complex, prescriptive form that only large, wealthy, centralized companies can afford.
This is indeed the case. On February 21, the probability on Polymarket that "Trump will establish a strategic Bitcoin reserve within 100 days of taking office" dropped to 10%, while on January 20, the day of Trump's presidential inauguration, the probability had once reached 48%.
The expectation of a BTC strategic reserve has not been fully realized. At the national level, Trump has not yet introduced a BTC strategic reserve bill, and he has even been absent from the cryptocurrency market for some time. At the state level, many have only proposed but been rejected.
On February 24, the Montana House of Representatives voted against a bill on February 22 that would have proposed using Bitcoin as a state reserve asset. The bill proposed establishing a special revenue account to invest in precious metals, stablecoins, and digital assets with a market cap over $750 billion, of which Bitcoin is the only one that currently meets this standard. The bill was opposed by several Republican lawmakers, who believed it would allow the state investment board to engage in excessive speculation with taxpayer funds at high risk. Supporters argued that if the bill was not passed, the state government would miss the opportunity to improve its investment returns. Currently, the bill has been essentially shelved and would need to be resubmitted to the legislature for consideration if it is to be reintroduced.
On February 25, according to Cointelegraph, the South Dakota House of Representatives' Commerce and Energy Committee decided to postpone HB 1202 to the "41st day" of the current legislative session during a legislative session on February 24. However, the state legislature has a maximum of 40 days, effectively rejecting the bill, meaning the state will not include Bitcoin as an official investment option for the time being.
Related reading: Arthur Hayes' New Article: Beyond Bitcoin's National Reserves, the US Crypto Hegemony Has Other Intentions
Is the Bull Market Still On?
On the other hand,
The poor performance of cryptocurrency stocks in the US stock market has also led to a diversion of risk liquidity to multiple areas including US stocks, gold, and US Treasuries, limiting liquidity injections into the Crypto market, including:
Coinbase (COIN) down 2.7%; Tesla (TSLA) down 2.66%; Trump Media & Technology Group (DJT) down 5.59%; MicroStrategy (MSTR) down 4.73%; MARA Holdings (MARA) down 5.12%; Riot Platforms (RIOT) down 4.67%; Hut 8 Corp. (HUT) down 8.48%
A large part of the reason may be that the tariff issue, though delayed, has arrived, with the Trump administration declaring that it will impose tariffs on Mexico and Canada on time, further strengthening the US dollar's position, and the risk of a decline in sales for the tech seven small dragons that make up a high weight in the Nasdaq index due to tariff expectations, with the risk of a burst in the AI bubble and capital flight.
Traders in the market have also presented data from the previous cycle and the cycle before that, showing that this cycle has not changed the inherent pattern of the cycle due to Trump's election, and multiple traders believe we are in a correction period within a bull market, but the short-term outlook is generally bearish.
In the 2021 market, Bitcoin ($BTC) fell 56%, Ethereum ($ETH) fell 61%, and Solana ($SOL) fell 67%, with many other tokens falling 70-80% or more. While there are various reasons that can be used to explain why this cycle is different from the past, the mid-bull market we are currently experiencing actually has historical precedents. Those who believe the market has entered a full-blown bear market are actually being misled.
Everyone needs to be patient, as this market environment is very similar to the macrostructure in 2017: Bitcoin experienced five corrections, each over 28%, and most corrections lasted 2 to 3 months before reaching new all-time highs. Meanwhile, other altcoins experienced around 65% corrections. During this stage, the market is filled with noise and uncertainty. Therefore, we should focus our efforts on more constructive activities than simply staring at the screen and being distracted by market volatility.
According to technical analyst @CryptoPainter_X:
The short-term trend of the current market has certain support, but the overall situation is still in a consolidation range. After reaching the secondary demand area on the 4-hour chart, there may be a supporting effect in the short term, especially when the spot premium is oscillating around the 0 axis and has not completely broken out of the consolidation range. Given that the small support areas in the consolidation are usually easily broken through, it is necessary to pay attention to whether the previous rhythm will continue. If the small support is broken, it may mean the continuation of the downward consolidation.
In addition, the current price has approached the lower limit of the consolidation channel at 91,400 (blue line), and the candlestick has not formed a long wick, so the strength of the short-term rebound will determine the subsequent trend. The blue line overlaps with the core demand area, theoretically providing short-term support. However, as the channel is about to move downward and may turn around, the long-term trend is still biased towards the bear market, which also suggests that the market may face further downward pressure.
Overall, although a rebound may occur in the short term, if it cannot break through the middle rail or the consolidation range, the market may still maintain a weakly consolidating trend.
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