Commentary

Is there more to the crypto market crash than meets the eye

AMBCrypto’s investigation showed that the Matrixport report did not have enough firepower to cause the flush. So, what was the real reason?

Published

12 months ago

on

  • Media amplification of the ETF rejection report caused the liquidations, not the report itself.
  • Analysts noted that the spot Bitcoin ETF approval is within reach.

The crypto market experienced one of its darkest hours on the 3rd of January as the price of Bitcoin [BTC] plunged below $42,000. The collapse occurred so fast amid rumors that all Bitcoin ETF applications were denied.

The details

In a report published by Matrixport, the digital-asset firm opined that the applications did not meet the desired requirements. It also mentioned that SEC Chair Gary Gensler’s hesitation to embrace crypto could play a part in the rejection.

However, AMBCrypto’s investigation showed that Matrixport was not the major reason for the price reaction.

This was because the piece was an opinion and Matrixport did not have the “clout” to nuke the market. Also, there were posts explaining how the firm’s CEO Jihan Wu did not have the credibility for matters related to the ETFs.

Crypto investor and analyst Scott Melker shared a similar opinion in his post on the same day.

Again, misinformation triggers the market

From AMBCrypto’s findings, the report became fake news because a major publication amplified it. So, participants panicked and started taking drastic actions while causing over $500 million in liquidation.

This incident was similar

to the one that happened in October 2023. At the time, another major publication posted that BlackRock was given the go-ahead to launch its ETF.  As a result, the Bitcoin price jumped from $27,000 to $30,000 within the twinkle of an eye.

Moments later, the publication apologized for “misleading” the market. The apology then sent BTC back to $28,000. But in between all that, traders with open contracts felt the heat as $85 million was wiped out.

During that time, Michael O’Rourke, chief market strategist at JonesTrading said that:

“The fake news about the Bitcoin ETF being approved highlights the challenge of protecting investors in an unregulated space that attracts shady operators and rampant speculation.”

As an extremely volatile market, fake news poses a serious threat to players genuinely concerned about the development of the industry. However, it is also important to mention that the entire blame should not be passed to publications pushing out erroneous information.

The decision draws nearer and it could be positive

Regarding the latest episode, people familiar with the matter have cleared the air on the development. For instance, Fox Business reporter Eleanor Terret, posted that proceedings regarding the Bitcoin ETFs were approaching the final stages.

The update provided on the 3rd of January read:

“While the final decision has not been made, sources close to the proceedings say the SEC could begin notifying issuers of approval on Friday with trading beginning as early as next week. ETF analysts and issuers alike remain confident that a favorable decision from the SEC will be made on or before Jan. 10, as the SEC continues to meet with key players on the matter.”

At press time, the Bitcoin price had recovered, changing hands at $43,129. Should the SEC make a positive declaration about the ETFs by the above date, players are optimistic that BTC would climb above $50,000.

One of those projecting the hike is Christopher Inks.

Inks is a trader and prides himself as a market psychology expert. According to him, Bitcoin might break and hit $53, 267 within a short period.

At the same time, the emerging reports were not confirmation that the SEC would not deny the applications.

In the meantime, on-chain data showed that BTC’s trading volume reached an incredible height. At press time, the volume was $47.38 billion.

The surge in volume was a sign that the dip was getting filled very fast. Like the volume, Bitcoin’s Weighted Sentiment climbed to 2.19.

Source: Santiment

Weighted Sentiment shows the unique social volume or comments linked to a project. So, the positive reading suggests that the broader market has its eyes set on a potential ETF approval over the next few days.

Who gets flushed in the end?

The metrics implied that players have moved on from the fake news, and are now standing their ground based on personal sentiment. However, both longs and shorts risk liquidation as shown by the Liquidation Heatmap.

The Liquidation Heatmap predicts the price levels where large-scale liquidation events may take place. According to AMBCrypto’s analysis of the HyblockCapital indicator, shorts with targets between $40,750 and $41.,250 could be liquidated.

Also, those with open positions believing that Bitcoin would drop to $36,000 could be affected by a flush. For longs, there was a cluster of liquidity around $47,100. So, traders may need to be cautious around that level.

Source: HyblockCapital

In conclusion, recent events have shown that cryptocurrencies are still vulnerable to inaccurate information.

Despite Jihan Wu’s clarification that its analysis was not intended to collapse prices, crypto media have to shoulder the responsibility of not partaking in this intentional or unintentional misrepresentation.

Read Bitcoin’s Price Prediction 2023-2024

However, it is unlikely that the tremor of the 3rd of January would influence the SEC’s decision per the spot Bitcoin ETFs.

Though the pathway looks like a promising one for approval, it is important to wait till the regulator itself confirms its stance.

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