The memory of 2015 stock market crash behind the “crash” of the cryptocurrency world

Fear the market, fear the risk!

The memory of 2015 stock market crash behind the "crash" of the cryptocurrency world

On May 19, a night of shock, cryptocurrencies saw an avalanche of prices.

According to OKEx, Bitcoin fell from a high of $43,816 to $29,000, a 33% drop. While the big brother is still in the same situation, other small brothers are even more “miserable”.

ETH fell from a low of $3464 to 1764 USDT,24 a maximum drop of 48%, and a host of cottage coins fell by a maximum of about 50%.

In the futures contract market, according to coincoin data, on May 19, more than 570,000 people across the network burst their positions, the burst amounted to 44.2 billion yuan, the largest single coin burst for $67 million, equivalent to 430 million yuan.

What exactly happened in such a tragic plunge?

Looking back on this cryptocurrency crash, we find that it has many similarities with the 2015 A-share crash.

First, the speculation on the subject of junk stocks.

Second, the stampede of leveraged funds and the chain of explosive positions.

Third, the acceleration of new share issuance.

Musk “Mutiny”

Looking back at this round of bitcoin plunge, a clear dividing point is the “defection” of Tesla CEO Musk.

Since this year, Musk has become a fan of cryptocurrencies, frequently touting bitcoin, dogcoin and other cryptocurrencies on social media platforms, and bringing a host of good things: Tesla bought more than $1.5 billion in bitcoin and accepted bitcoin payments; Musk spared no effort to bring goods for dogcoin, calling himself the godfather of dogcoin ……

The market is booming, with bitcoin hitting a high of $648.43 million per coin, up over 70% from the beginning of the year; dogcoin even rose 260 times in six months.

However, on May 13, Musk suddenly “defected” and announced on Twitter that Tesla was suspending the acceptance of bitcoin as a payment method due to concerns about the environmental problems caused by mining.

Although, in a statement, Tesla emphasized that it would not sell any of its bitcoin holdings and would reaccept the payment method when more renewable energy is used in the mining process.

The news immediately ushered in a plunge in bitcoin, down more than $10,000, or nearly 15%, with the previously hot Shiba Inu coin plunging nearly 40% at one point during the day.

The farce did not end there.

In the early morning of May 17, Musk hinted in another tweet that Tesla may have sold its remaining bitcoin holdings, followed by a plunge of more than 10% in bitcoin to a low of $42,212.

That morning, Musk posted a clarification that Tesla had not sold any bitcoin. Once the news came out, bitcoin briefly rose and pulled up $2,500, but failed to recover lost ground.

Musk’s sudden mutiny, taking advantage of environmental issues to take on Bitcoin and the quantum swings between “selling” and “not selling”, completely angered investors in the cryptocurrency community and split the Bitcoin investor community and the dog coin community, forming a confrontation that kicked off the Bitcoin crash.

Chinese Regulation Coming

Just when everyone was wondering about Musk’s wavering stance, Chinese regulators came along for the ride.

On the evening of May 18, the China Internet Finance Association, the China Banking Association, and the China Payment Clearing Association jointly issued the “Announcement on Preventing the Risk of Speculation in Virtual Currency Transactions,” in which the three associations requested that financial institutions, payment institutions, and other members should effectively enhance their social responsibility and not use virtual currency to price their products and services, underwrite insurance business related to virtual currency or include virtual currency in the scope of insurance liability, or provide other services related to virtual currency directly or indirectly for their customers.

One article is highlighted.

Conducting exchange business between legal tender and virtual currency and between virtual currency, buying and selling virtual currency as a central counterparty, providing information intermediary and pricing services for virtual currency transactions, financing token issuance and trading of virtual currency derivatives and other related trading activities violate relevant laws and regulations and are suspected of illegal fund raising, illegal issuance of securities, illegal offering of tokens and coupons and other criminal activities.

Once the announcement was made, Bitpac Wallet then released a message announcing the closure of a number of businesses such as OTC and coin exchange services.

On the same day, Inner Mongolia issued an announcement on the establishment of a reporting platform for virtual currency “mining” enterprises, which allows the public to report on four types of participants, including virtual currency “mining” enterprises and enterprises that provide services such as venue leasing for virtual currency “mining” enterprises.

The announcement by the three departments dealt another blow to the fragile market environment, and overseas, many investors interpreted it as “China will ban bitcoin” and started panic selling.

A big fall was imminent.

Stock Market Crash Memories

Looking back at this cryptocurrency crash, we see many similarities with the 2015 A-share crash.

First, the speculation on the subject of junk stocks.

In 2015, the hottest investment subjects of A-shares were stocks without core competitiveness like Storm Video, Quan Tong Education and LeTV: Storm Video had 29 one-word stops; Quan Tong Education rose more than ten times, surpassing Maotai to become the first high-priced stock; LeTV’s market value peaked at 170 billion yuan ……

Junk stocks are flying and retail investors are running into the market, a typical feature of bubbling.

The same is true for the coin circle. Driven by dog coins, a host of air coins without fundamentals such as Shiba Inu coin, husky coin and pig coin …… have become market hotspots, soaring hundreds of times and triggering a speculative frenzy.

The proliferation and speculation of air coins alienated the original market capital institution, and a large number of retail funds withdrew from mainstream coins and invested in animal coins. The more dispersed the funds are, the more fragile the market becomes as a result.

The second is the treadmill of leveraged funds and the chain of explosions.

How did the bull market come about? It came from leverage and went from leverage.

The bull market of A-shares in 2015 is the result of accelerated entry of leveraged funds, the accumulated overlapping leverage, the typical “leveraged bull”.

According to a research report released by Haitong Securities, the scale of leveraged funds at the peak of A-shares in 2015 was about 4 trillion, mainly including: 2.27 trillion in on-course financing, and about 1.8 trillion in off-course matching funds.

Leveraged funds are very sensitive to the decline in the general market, when the stock market market goes bad, in order to avoid being forced to close positions by the system, many leveraged funds will leave the market as soon as possible, or directly be liquidated, which also caused the stock price to fall, thus triggering a larger chain of explosive positions.

“Plunge – forced liquidation – plunge again – more massive liquidation”, wave after wave of plunges, throwing investors mercilessly into the abyss of the stock market crash.

This year, the cryptocurrency market has done the same.

Thanks to the rise of decentralization (DeFi), investors can conveniently pledge bitcoin, ethereum and a host of other cryptocurrencies in various lending agreements to obtain USD stable coins USDT at a pledge ratio of 60%-80%, and then invest in the market to buy assets and continue pledging, cycling and leveraging.

On the morning of May 19, the total amount of pledges on the chain of the three major lending agreements MakerAaveCompound on Ether reached $33 billion in centralized exchangeswallets, which also provide financial services such as collateralized lending, and the prosperity of the entire market is built on leveraged funds.

Such a market is prosperous and fragile, and once it plunges, it will be caught in a death spiral of continuous stampede, plunging – closing – plunging again – closing again ……

According to Debank data, as of May 20, mainstream DeFi lending agreements cleared $629 million in 24 hours.

Similar to A-shares in 2015, the essence of the crash was violent deleveraging.

In the frightening night of May 19, what was even more thrilling was that Sun Yuchen’s 600,000 (worth $1.5 billion) Ether was almost liquidated, which would have triggered a new round of plunge and a full collapse if it had been slammed into the market.

Cryptocurrency bigwig Godfish commented that “if ETH drops another 100+, (Ether) will be seen within 1,000 knives tonight I guess”.

According to the Twitter account Philippe Castonguay yesterday, the lending platform LiquityProtocol was 2 minutes away from liquidating Sun Yuchen’s 606,000 Ether, and in a very urgent period of time, Sun Yuchen repaid $300 million to make this liquidation untouched, nearly becoming the cryptocurrency circle “Bill Hwang”.

Recalling the moment of shock, Sun Yuchen tweeted, “There was indeed a moment when a bullet brushed past my scalp, making me sweat cold.”

Third, the acceleration of new share issuance.

During 2015, the Securities Regulatory Commission changed the issuance of new shares from one issue in January to a double issue in January. A large number of new shares were issued, freezing a large amount of capital and increasing the blood-letting effect of the stock market, weakening the momentum of the general market’s rise and intensifying the magnitude of the stock market’s shocks.

In the cryptocurrency circle, several new projects come online on exchanges almost every day. Both individuals and teams are eager to make huge profits in the bull market by issuing their own cryptocurrencies, and the constant flow of new projects has drawn a large amount of funds away from the mainstream market, leaving the secondary market lacking in depth capital support.

Saving the cryptocurrency world

At the time of the plunge, Tesla CEO Musk tweeted that “Tesla has Diamond Hand”.

Literally, having a “diamond hand” means not fearing market volatility and holding a position until the target, which can be interpreted to mean that Tesla will not sell off the bitcoin it already has in its hands.

According to calculations, Tesla’s average bitcoin position is around $25,000 per unit, which is still more than 50% profitable at the current market price.

U.S. stock market goddess Cathie Wood also came out to cheer Bitcoin, saying she still holds to her previous view that Bitcoin will rise to $500,000.

Sun Yuchen, too, spoke out after the scare, saying he had “bought low” and bought $153 million worth of bitcoin at an average price of $36,868, and $135 million worth of ethereum at an average price of $2,509. Ether.

The market will be replayed by a new round of leveraged funds and various forces.

Wu Jihan, the original founder of Bitmain, is bullish on the future market and believes that “a big bull market is about to unfold”, but some investors are starting to retreat and are ready to leave enough ammunition to “pick up corpses” in the bear market.

“The entire coin circle is earning money from the dollar bubble, the Federal Reserve released the minutes of the April FOMC meeting and began to mention that it is alert to the upside risk of inflation, and will discuss the withdrawal of QE to the table, once the dollar rate hike is approaching, then the entire coin circle will enter a new round of bear market”, said an investor.

There is nothing new in the world, whether it’s the stock market or the coin world, as long as the dream of getting rich overnight remains, the slaves of leverage will keep pushing the whole market in a cycle of prosperity and collapse, and then become the glorious fuel to bloom a moment of fire to prove that they once existed.

Fear the market, fear the risk!

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.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-05-20 13:23
Next 2021-05-20 13:32

Related articles