SBF compiles five possible causes, but admits it’s ‘impossible to predict’

The big difference in this drop is that it was not driven by “liquidation derivatives”.

SBF compiles five possible causes, but admits it's 'impossible to predict'

Following the 519 crash, the crypto market continued to shake down again yesterday (23), with FTX data showing that Bitcoin (BTC) fell 7.3% in a single day yesterday, with an even double-digit intraday drop. While ‘cryptocurrency veteran leeks’ are not surprised by this drop, veteran traders still smell a hint of something unusual.

Since mid-2019, a large part of the crypto market’s ‘bandwagon up or down’ is due to the liquidation of derivatives. Benson Sun, a community partner at FTX Taiwan, said the biggest difference in this decline is that it is not driven by ‘liquidating derivatives’.

Over the past six months, most of the momentum in the bitcoin market, both up and down, has been driven by the liquidation of derivatives. After the May 19 drop, the market has liquidated almost $20 billion, and the futures market has about $20 billion of open interest left.

The remaining parts should mostly belong to hedges or very low-leverage contracts, so without liquidation capacity, Sunday’s decline is actually puzzling for veteran crypto traders.

In response to the market’s confusion, Sam Bankman-Fried (SBF), founder and CEO of FTX Exchange, compiled some insight into the data in a tweet.

SBF said that about $20 billion in contracts were liquidated during last week’s crash, leaving the market with about $20 billion in open interest (OI) at the moment. And while he thinks it’s unlikely that this open interest will be liquidated, there are still ‘other types’ of liquidation in the market, including rumors of spot margin trading, OTC loans, and the FireCoin/OKEx exchange.

SBF further explained that the current spot margin collateral volume on FTX is about $1 billion and is still stable, while Bitfinex has about $2 billion, and other exchanges may have larger liquidation volumes, perhaps as a source of downward liquidation.

In addition, market rumors that the Firecoin/OKEx exchange would be scaled back by the Chinese government’s ban may have contributed, and the open positions of these two exchanges may add up to around $3 billion. Finally, SBF also mentions that Chinese miners are selling bitcoin and ethereum, although the exact number sold is still unknown.

Despite compiling some of the data, SBF is still unsure of the price trend.

Even knowing this, there is no way to predict future price movements, as anyone can trade at any time.

But I haven’t seen that much ‘forced’ selling so far. There may be some, but not to that extent.

SBF compiles five possible causes, but admits it's 'impossible to predict'

De-leveraging in the Spot Market

Benson analyzed that from the data compiled, it can be speculated that this decline should not be driven by derivatives, but more likely related to China’s regulatory policy. On Friday, China’s State Council set the tone to crack down on bitcoin “mining and trading” practices, and once the news came out, the price of USDT to RMB on Hotcoin and OKEx instantly jumped (see chart).

SBF compiles five possible causes, but admits it's 'impossible to predict'

He explained that most past regulation from China has been to limit financial capital involvement in digital currency trading and to curb the speculative culture of capital markets, but this time there is a clear mention of a crackdown on bitcoin mining and trading, and the level of this release is much higher than before, with Liu He being the highest-ranking official in China to publicly order a crackdown on bitcoin at the moment, with such influence that it cannot be generalized from previous regulatory news.

He believes this may also explain why bitcoin fell without volume on the holiday. As the State Council’s news was released at 10pm last Friday, the relevant policy details will only be released this week, and there may be some miners as well as traders who are worried that the implementation details will contain significant negative news, so they rushed to sell their coins to cash out on the holiday, causing the OTC price of USDT on major mainland exchanges to go from an original premium of 1-2% The OTC prices of USDT on major exchanges on the mainland went from a 1-2% premium to a discount. A special force in the market has been selling coins over the weekend, and the lower liquidity on holidays versus weekdays may be the reason for the bitcoin’s gloomy streak and the dive in smaller coins,” Benson added. Benson added.

Benson’s speculation also coincides with a tweet from Danhua Capital managing director Hugh Wan, who tweeted on the day of the State Department’s announcement about some big Chinese miners ruthlessly selling their coins to cash out.

SBF compiles five possible causes, but admits it's 'impossible to predict'

On the other hand, the warning signs from China’s three major financial associations about bitcoin trading are likely the main reason for this decline.

Not just for the crypto trading market, but the Chinese government has in fact been imposing a ‘credit crunch’. In an effort to tighten risk control, the Chinese government has started scaling back its epidemic-related stimulus measures ahead of schedule, creating market discipline for the most vulnerable economic activities, and the crypto market is one of those “vulnerable” economic activities.

The deleveraging of the spot market is likely the reason for the weak rally and renewed decline, compounded by the Chinese government’s credit crunch,” Benson said. Perhaps this explains why miners or traders are selling their parts when liquidity and liquidity are so low.

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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