Crypto market exploded 40 billion, experience and lessons learned in extreme market

Markets are irrational most of the time. Recognize reality, stay awake, and use the right tools.

Crypto market exploded 40 billion, experience and lessons learned in extreme market

It seems that after a year, “312” is still fresh in our minds, but after a year, it seems that it is only a topic of discussion after dinner, and most people have already forgotten about the event, especially for those who are new to the crypto market, it may just be a “rumor”. It may be a “rumor” to some newcomers to the crypto market.

But on the eve of “520”, the Internet Valentine’s Day, an unexpected “surprise attack” shocked the crypto market. In the evening of May 19, Bitcoin fell all the way down, breaking the support level one after another and going below $30,000, dropping more than 30% in 24 hours, hitting a new low since the end of January this year; Ether fell below the $2,000 mark, dropping more than 40%; the previously hot dog coin also fell below $0.3, almost cutting off.

Such a severe drop has caused more than 500,000 people worldwide to blow up their positions, and the total amount of blow-ups has quickly exceeded the 40 billion mark, so the good night before Valentine’s Day has turned into a “night to remember”, especially for those with large blow-ups. The market has rebounded well yesterday, standing at the juncture of history, we should learn from this “bloodbath” what? And what is the reason for such drastic fluctuations?

The “519” plunge reason analysis
1, the sword of Damocles: interest rate hikes are expected

Affected by the epidemic, the U.S. government adopted a number of rounds of economic subsidies, and the transition of subsidies inhibited the growth of employment, resulting in the U.S. April non-farm data less than expected, at the same time, over-issued currency and employment slump caused the U.S. CPI in April significantly exceeded market expectations of 3.6%, up 4.2% year-on-year, the largest increase since the second half of 2009.

Influenced by this, inflation exceeded expectations upward accelerated the market expectations of the Fed’s policy turn, the market began to rumors of the recent Biden may introduce a policy of interest rate hikes. The expectation of interest rate hike is like the sword of Damocles hanging over the heads of traditional funds entering the cryptocurrency field, and the increase in expectation is like the sword suddenly dropping a little bit and about to touch the head, so traditional funds started to flee, which is an important factor.

2, the market is overheated: “zoo” forgot to lock the door

This year, influenced by the world’s richest man, Elon Musk, dog coin won an amazing surge, and in May, with another animal coin SHIB (Shiba Inu coin) again by rubbing Musk’s hot spot again in a short period of time soared, causing widespread concern in the market. Some astute speculators immediately followed suit and launched various animal cryptocurrencies such as husky coin, orangutan coin and pig coin.

The market overheating caused by such chaos is not a normal phenomenon, and it will bring many profit-takers and speculators, which may lead to a collapse if the wind blows a little.

3, has not stopped the regulatory signal

On the one hand, domestic places such as Beijing, Inner Mongolia, Xinjiang and other places have begun to high pressure regulation of the mining industry. Because mining itself is a huge power-consuming industry, now the domestic provinces are gradually beginning to have strict requirements for carbon emissions, the use of thermal power in some provinces therefore began to limit.

In addition, on May 18, the Mutual Funds Association and three other departments issued a message saying that financial payment institutions shall not carry out business related to virtual currency and shall not provide other services related to virtual currency directly or indirectly for their customers. This news became the last straw that broke the camel’s back, and the whole market then started a tragic and inhumane decline.

The story behind the over 40 billion burst
1, DeFi brought a chain of explosions

Put to the previous market, the amount of burst is actually difficult to reach such a high amount, but because of the rapid development of DeFi in the past year, a number of crypto products with mortgage loans were born, and the amount of locked positions in the DeFi market also hit a new high one after another, from less than $1 billion at the beginning of last year to a maximum of $110 billion, a smashing increase.

And according to OKlink data, on May 19 alone, the total lock-in volume of ethereum DeFi ecology decreased by $15 billion, and if we count from $110 billion on May 11, the total lock-in asset value shrunk by 30%.

When we look deeper into the reasons behind this, the reason for the appearance of large burst orders is the rapid decline of the market on the one hand, and the liquidation of these DeFi products on the other. As of May 20, DeBank data showed that the 24-hour liquidation of mainstream DeFi lending agreements was worth more than $600 million for the first time since Feb. 22 of last year.

It is because of the appearance of these large amounts of liquidation, so that the market further accelerated the decline, and eventually formed a “chain of explosions” situation, and the reason behind the DeFi market without rules of collateralized lending, re-mortgage re-lending, in turn, there is a “plunge, forced to close, liquidation, and then plunge” spiral down, which naturally causes large amounts of explosions appear.

2, contract players failed to cover their positions in time

On the other hand, we know that since the beginning of BitMEX, the crypto market has been filled with highly leveraged contract products, and the plummeting and soaring of the crypto market has made some players unable to control their hands and often choose the way of “testing at the edge of danger”, and every time when the extreme market comes, they are forced to “blow up the position and stop loss”.

But this is in addition to the player’s misjudgment of direction, another factor also stems from every extreme market, some trading platforms to fill the path will encounter “downtime”, resulting in some of the original can take the work of the single also become a “turtle in a jar”.

Another way to solve this problem is to use OuYi OKEx unified account, which was launched almost half a year ago. Through the unified account, cross-currency margin settlement can be conveniently carried out, thus saving costs and reducing transaction friction. You know that converting other types of crypto assets into the underlying you need is bound to cost more to complete the operation, after all, instantaneous trading slippage (the difference between the price of the order placed and the actual price of the transaction due to the market pending capacity) is inevitable.

In addition, like this extreme quotes appear, that a few seconds of time is really life and death, so the most obvious benefit of such a unified account trading method is to shorten the processing time of extreme transactions and simplify the operation steps, which to a certain extent can avoid the burst because of untimely position adjustment.

Of course, the use of a unified account is only the perfection of the tool, if it is a fully leveraged approach, any tool can not solve the essential problem, but only to reduce the probability.

Whether it is last year’s “312”, or this year’s “519”, when the market is overheated, when non-professionals rampant, the market will always come to a head, as a warning to fear the market, I think this is probably a constant problem, after all, the market is most of the time irrational, and we can do nothing more than to recognize the reality, stay awake, and use good tools.

Faced with yesterday’s plunge, I suddenly remembered an old saying of Mr. Warren Buffett, “When the tide goes out, you know who is swimming naked”, I hope we are not the one who only wears a thong, together.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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