How Will the Market Evolve After the BTC Crash on August 17?
What was the Reason for the Crash on August 17?
Bitcoin suddenly plummeted sharply last Friday morning, dropping as low as $24,220, while also collapsing with other tokens. According to Coinglas data, the entire network has sold out $1B in the past 12 hours, far exceeding the record during the FTX crash at the end of last year, second only to the $1.3 billion record for the “May 19” incident and the approximately $3 billion record for the “March 12” incident.
Bitcoin daily trend chart Source: Gate.io
Presently, the market generally attributes the sharp drop in BTC prices to reports of SpaceX selling Bitcoin.
According to the Wall Street Journal, Musk’s SpaceX has sold $373 million worth of Bitcoin purchased between 2021 and 2022, resulting in a profit of $55 million and revenue of $1.5 billion in the first quarter of 2023.
WSJ Report on SpaceX Selling Bitcoin Source: THE WALL STREET JOURNAL
But such a bundling interpretation seems too far-fetched. From the perspective of media interpretation, although the time SpaceX sold Bitcoin is not yet clear, it should have been completed before the first quarter of this year. In other words, the sale of SpaceX is not the direct cause of this crash. If causal binding is necessary, we can only say that the crash coincided with the time of the news, or simply amplifies the market’s pessimistic sentiment on the news side.
Some people believe the sharp drop was due to the shrinkage of the spot trading market and the increase in the derivatives market. The decrease in spot trading volume has led to a decrease in market supply, while the increase in the derivatives market has brought more speculators and leveraged trading. This change in market structure may lead to increased price volatility, leading to a sharp decline in Bitcoin.
Bitcoin 60-day historical volatility Source: Coinglas
This explanation is explained from the perspective of funds. In fact, it is not just the crypto market. Traditional financial markets, when faced with liquidity tightening and attenuation, often cause price volatility to decrease and narrow within a very small range of fluctuations. Once the market experiences sudden changes, such as technological breakthroughs or external information stimuli, market prices will respond to unilateral fluctuations in a very short period of time. “How long is the horizontal and how high is the vertical” is a condensed expression of this situation.
Possible Future Trends
The ups and downs of the market are very normal. During a bear market, there will also be a situation where prices double, and during a bull market, there are also extreme trends where prices halve by 50%. In my opinion, the sharp drop of August 17th BTC is not that uncommon, which may provide us with better opportunities to enter the market.
We use the zigzag indicator ZIGZAG (5,10) to divide the upward and downward trends of BTC during the past bull market. We found that during the two more obvious bull market periods, there have been 16 and 13 decline frequencies of over 20%, respectively, with 3 and 2 decline frequencies of over 40%.
The path depicted in a zigzag pattern, from its high point of $30,242.7 on August 8th to its low point of $24,220 on August 17th, has fallen by less than 20%. Therefore, compared with the number of declines during past bull markets, this downward trend is not considered exceptional and is within a reasonable range.
To put it aside, there is a clear trend in the table above. From a horizontal perspective, whether it is a bear market or a bull market, the number of drops within a certain range is generally decreasing. This indicates that Bitcoin is evolving towards mature asset classes, and volatility is also decreasing with it.
BTC daily trend chart by zigzag trend Source: TradeView
The daily Candlestick chart of the token price on 17 August is the standard “draw sword from the scab” in technical analysis. Compared to the surrounding Candlestick chart, this one has obvious characteristics: the entity of the negative line is large, and the shadow line is long, appearing in a downward trend.
As shown in the following figure, after the appearance of this Candlestick chart, there will be two situations in the future market:
1.The price fluctuated and began to rise after a double dip (with many occurrences);
2.The price fluctuates downward (with very few occurrences).
Figure 5 shows the trend of token prices after the negative line breaks through the horizontal range. Source: Gate.io
According to our review analysis, unless there is an exceptional event shock, in the normal future market trend, the token price will probably trigger a new low twice. Whether viewed from the current market background, or from the support level of technical analysis, volatility indicators, etc., the future market will likely continue the path of situation 1 instead of situation 2.
Conclusion
Please note that the market is unpredictable, but investments can be planned. No matter how meticulous and effective our prior analysis is, we should respect the market, follow trends, and more importantly, do a good job in DYOR.
