“Reviewing” Bitcoin’s roller coaster plunge: Who directed the liquidation of more than 370,000 accounts?

Source: 21st Century Business Herald, author: Chen Zhi

"It is estimated that many people will be liquidated again this time." Wang Qiang (pseudonym), a Bitcoin investor, told reporters bluntly.

As of 19:00 on February 23, the price of Bitcoin fell to around $487,023, a drop of more than 20% in the past 24 hours. This means that many retail investors who bought the bottom of Bitcoin at around $50,000 on the evening of the 22nd are also in a loss dilemma, and even some retail investors who bought the bottom with high leverage are facing liquidation.

Data shows that in the 24 hours before 19:00 on the 23rd, a total of more than 370,000 Bitcoin accounts were liquidated, with the liquidation amount exceeding US$2.7 billion.

According to many people in the cryptocurrency industry, the main reason why Bitcoin suffered such a sharp drop was that U.S. Treasury Secretary Janet Yellen bluntly stated on the evening of the 22nd that Bitcoin is not only often used for illegal financing, but also highly speculative. This statement caused a large number of institutional investors to sell Bitcoin en masse out of fear that it would face stricter regulation.

William, chief researcher of OKEx, believes that another reason for the sharp drop in Bitcoin is that Bitcoin has continued to set new highs and has accumulated a large number of profit-taking orders. They are extremely sensitive to the risk of market price fluctuations. Once they find that Bitcoin regulatory policies are becoming stricter or prices fluctuate sharply, they will quickly withdraw profits, further amplifying the decline of Bitcoin.

"However, the biggest factor that triggered this round of Bitcoin's plunge is that after Bitcoin was included in the asset allocation of institutional investors, its price fluctuations were increasingly affected by the external environment," a Wall Street hedge fund manager who liquidated his Bitcoin positions on the evening of the 22nd told reporters. For example, as the 10-year U.S. Treasury yield continues to rise, it is driving more and more Wall Street investment institutions to sell overvalued U.S. stocks and Bitcoin, and instead invest funds in bond assets.

In his opinion, the roller coaster market of Bitcoin in the past 24 hours, which has seen a sharp drop-surge-surge, precisely reflects a fierce battle between institutions and retail investors. However, since retail investors’ bargain hunting funds are unable to resist the selling of institutions, Bitcoin eventually cannot escape the fate of a sharp drop.

"Institutions make us successful and institutions also make us fail," the Wall Street hedge fund manager said frankly. Previously, Bitcoin continued to soar, mainly due to the entry of institutional investors. Now when institutional investors decide to take profits and leave, Bitcoin will inevitably "return to value." However, many retail investors who hoped to get rich overnight by investing in Bitcoin unfortunately became the last ones to take over.

From institutional and retail investors' long-short battle to retail investors' "long kills long"

After Yellen expressed the above views, Wang Qiang felt that Bitcoin would experience a correction.

"But on the evening of the 22nd, Bitcoin fell from $57,000 to $49,000. Such a big drop was beyond my expectation," he recalled. When Bitcoin once fell below $50,000, he received a text message from the digital currency exchange asking him to add margin for trading. If he could not collect the margin that night, his Bitcoin account would be forced to close and stop loss the next day.

Wang Qiang couldn't figure out who directed the sharp drop in Bitcoin prices on the evening of February 22.

The reporter learned from multiple sources that the main force behind the sale of Bitcoin that night came from Wall Street hedge funds. The reason was that the rise in U.S. bond yields triggered a surge in inflation trading, which led them to choose to sell Bitcoin at high prices to take profits.

"However, the reason why Bitcoin is sought after by institutional investors is precisely because they see Bitcoin as a new tool to fight inflation, so the rise in inflation trading should be good for Bitcoin," Wang Qiang believes. But he learned from several people in digital currency exchanges that the investment logic of Wall Street investment institutions is exactly the opposite - they believe that the rise in US bond yields and the rise in inflation trading will trigger the Federal Reserve to tighten monetary policy in advance, so US stocks and Bitcoin, which benefit from monetary easing and rise, suddenly become the main targets of their selling.

Just as Wang Qiang was trying to raise funds to add to the margin, a "miracle" suddenly occurred.

As a large number of retail investors rushed to buy the bottom of Bitcoin, within half an hour after 9 pm on February 22, the price of Bitcoin suddenly recovered most of its lost ground - rising sharply from US$49,000 to US$53,000.

"I escaped a disaster because I no longer have to pay a deposit," said Wang Qiang. At the time, he also considered buying Bitcoin at the bottom to make quick money, but due to insufficient account balance, he could only watch other retail investors rush in to buy at the bottom.

A person from a cryptocurrency exchange told the reporter that many retail investors who were looking for bargains used 20-50 times leverage on the evening of the 22nd. Because in the past six months, Bitcoin has quickly recovered its losses and hit new highs after a sharp drop, so they boldly followed suit and regarded this sharp drop as an excellent opportunity to buy at the bottom.

"In fact, the logic behind many retail investors' bottom-fishing is very simple. As long as another large institution like Tesla decides to invest in Bitcoin or use Bitcoin as a payment tool, Bitcoin will rise again to a new high," he pointed out.

However, retail investors obviously miscalculated this time. Since the early morning of the 23rd, Bitcoin has continued to fall, falling to around $47,023 at 19:00, with a cumulative decline of more than 20% in the past 24 hours.

"There are rumors in the market that some big Bitcoin holders and institutional investors in Asia frantically sold Bitcoin on the 23rd, while retail investors' funds for bargain hunting had already been exhausted on the evening of the 22nd, and they were simply unable to turn the tide." Several digital currency exchange personnel told reporters. Behind this, it just highlights that the institutional-retail long-short duel in the Bitcoin market has quietly been decided.

This put Wang Qiang in a position of liquidation again. On the afternoon of February 23, he received another text message from the digital currency exchange asking him to add to his trading margin.

"In fact, the severity of the margin call this time is much greater than that on the night of the 22nd, because Bitcoin has fallen below $48,000, which means that there is very little money left in my account." He told reporters. He decided to quickly liquidate all Bitcoin positions to recover as much investment as possible. "Today's Bitcoin market has changed from a battle between institutions and retail investors to a situation where retail investors are bullish and bullish."

It is worth noting that the continued sharp drop in Bitcoin is causing more and more retail investors to be liquidated.

“Many of those who had their positions liquidated entered the market on the evening of the 22nd to buy at the bottom, but they did not expect that they would all be liquidated and leave the market within 24 hours.” The aforementioned digital currency exchange person told reporters.

Are retail investors misjudging regulatory trends?

The reporter learned from multiple sources that the reason why many retail investors who tried to buy at the bottom failed was largely because they misjudged the regulatory trend.

Specifically, with the world's first Bitcoin ETF listed and traded in Canada, these retail bargain-hunting investors expect that the U.S. Securities and Exchange Commission (SEC) will soon follow suit and allow Bitcoin ETFs to be listed and traded, so they choose to "ignore" Yellen's remarks and instead buy Bitcoin at low prices.

"In fact, the SEC has always been cautious about allowing Bitcoin ETFs to be listed and traded." A hedge fund manager familiar with the regulation of encrypted digital currencies in the United States revealed to reporters. Specifically, the US SEC has always believed that the issuer of the Bitcoin ETF cannot guarantee that the price of Bitcoin will not be manipulated by the market, and Bitcoin, as the underlying asset of the ETF, still lacks a suitable custody mechanism.

Although the U.S. Treasury Department and the SEC have always had disputes over the ownership of regulatory authority for cryptocurrencies such as Bitcoin - the U.S. Treasury Department believes that digital currency assets belong to the category of currency management, while the SEC tends to include digital currency assets in the field of securities token regulation, the two sides have the same attitude in combating money laundering, market manipulation, and improving the regulation of digital currency trading infrastructure, etc. This means that before Bitcoin trading becomes legal and compliant, the SEC is unlikely to allow the listing of Bitcoin ETFs.

Several Wall Street hedge fund managers revealed to reporters that compared with the "blind optimism" of retail investors, Wall Street investment institutions are "clear-headed" about this - especially after Yellen expressed the above views, they realized that the Treasury Department and the SEC are likely to temporarily shelve the dispute over the regulatory ownership of encrypted digital currency assets, and instead work together to strengthen the real-name registration of Bitcoin accounts and the supervision of funds flows, giving priority to ensuring the stability and security of the financial markets.

"In fact, when the Canadian Bitcoin ETF's asset management scale exceeded $400 million, we had already decided to sell Bitcoin at high prices." The aforementioned hedge fund manager who liquidated his Bitcoin position on the evening of the 22nd told reporters. At a time when the US SEC is unlikely to allow the listing of Bitcoin ETFs in the short term, the Canadian Bitcoin ETF has brought liquidity, allowing them to exit smoothly.

In his opinion, many Wall Street hedge funds have long regarded Bitcoin ETFs as high-priced targets. However, they did not expect that many retail investors would see the listing of Bitcoin ETFs as a bargain hunting opportunity, triggering a fierce battle between institutions and retail investors. However, facing Wall Street investment institutions with positions in more than 50% of the Bitcoin supply, retail investors are almost powerless to resist the collective selling of institutions.