Bitcoin's (BTC) rapid decline on Wednesday reminded investors of the asset's downward volatility, with observers quick to point to a research report that predicted rejections for highly anticipated U.S. spot BTC exchange-traded funds and even comments from CNBC- Moderator Jim Cramer as potential triggers.
However, analysts told CoinDesk that overzealous bullish bets on a sustained rally had set the market up for a pullback.
Data from CoinDesk Indices shows that BTC fell from around $45,000 to a low of $40,800 in a matter of hours early Wednesday, around the time Singapore-based digital asset firm Matrixport released a report from Markus Thielen authored report predicting that the U.S. Securities and Exchange Commission will reject all spot Bitcoin ETF applications, reversing its Tuesday outlook and predicting an imminent approval and a BTC rally to $50,000.
Jihan Wu, co-founder of Matrixport, said the report was unlikely to trigger the crash, pointing to weakness in crypto-related stocks in recent days, potentially indicating weakening momentum in digital assets.
“It is unrealistic to believe that a Matrixport report could bring down a trillion-dollar market,” Wu posted late Wednesday afternoon UTC time on X.
“We also witnessed an unexpected decline in crypto stocks on consecutive trading days while the price of Bitcoin remained stable,” Wu added. “These events, which occurred before Markus Thielen’s report, appeared to have less impact and attract less attention.”
Analysts refuted Matrixport's contrarian argument, saying there was no evidence regulators would reject the applications and citing higher chances of eventual approval. As a result, Bitcoin price recovered from Wednesday's lows to around $42,900 by afternoon UTC time, but was still trading almost 5% lower over the past 24 hours.
The rapid decline came just a day after CNBC host and former hedge fund manager Jim Cramer's positive comments on Bitcoin, reflecting his negative outlook in October. While that's unlikely, observers have subsequently singled out his comment as a sign of falling prices, citing a popular meme of Cramer's internet-famous success-cum-failure story. (For example, BTC is still up about 60% since his October remark.)
Vetle Lunde, senior analyst at K33 Research, said the market is overheated and over-leveraged, making it highly vulnerable to downward moves.
“The market's leverage was very high before the crash, with long positions being the main aggressor, as evidenced by the fact that funding rates and futures premiums rose to annual rates of over 50%,” Lunde explained in an interview via email. Mail. “This left the market extremely exposed to downward volatility.”
Matrixport's inconsistent report served as sufficient catalyst for the unwinding of overleveraged positions, leading to a cascade liquidation and worsening the decline. Nearly $560 million in leveraged long derivatives trading positions – bets on higher prices using borrowed money – were wiped out as of press time through Wednesday, the highest amount in at least three months, data from CoinGlass shows.
“It’s a typical long liquidation flush,” Lunde said.
Digital asset research firm CryptoQuant also attributed the decline to exceptionally high funding rates in the Bitcoin futures market, with selling pressure from Bitcoin miners and high profit rates from short-term holders as contributing factors.
Analysts at CryptoQuant said last week that a spot approval of the Bitcoin ETF is likely to occur and it may be a “sell-the-news” event that could send BTC higher to $32,000.
LMAX strategist Joel Kruger said in an email that the overwhelming consensus is that approval for a Bitcoin ETF in the U.S. is “a matter of when, not if.”
K33's Lunde had a similar opinion, saying that a rejection seems highly unlikely given Grayscale's court victory and all the back-and-forth between the SEC and issuers that led to updated S-1s and cash creations.
LMAX's Kruger said Wednesday's decline is likely a short-term price move and expects a 10% Bitcoin rally within a day or two of the approval announcement, as well as all-time high prices later this year.
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