A Chaotic Week: What Caused the Price Plunge?

Welcome to the Asia Pacific Morning Brief—your essential summary of overnight crypto developments influencing regional markets and global sentiment. This Monday’s edition reviews last week and forecasts the upcoming week, presented by Paul Kim. Grab a green tea and stay tuned.

Last week, Bitcoin’s price saw a decline of about 4%. While fluctuations are common for this volatile cryptocurrency, it can be disconcerting for investors who watched its value rise above $120,000 just two weeks prior, only to retreat to around $100,000.

The Whale’s Ripple Effect

What caused this sudden decline? A closer examination indicates a dual impact from a whale and a weakening stock market.

The primary catalyst for the price drop was a long-time Bitcoin holder. As reported by on-chain analytics platform Lookonchain, this “whale” had over 100,000 bitcoins.

Last Monday, they suddenly began liquidating their holdings on exchanges such as Hyperliquid and reallocating into Ethereum (ETH). This sell-off spanned over a day, resulting in Bitcoin’s price plummeting from roughly $114,000 to $108,600.

Fortunately, once the situation was recognized as an isolated event, the market stabilized and began to recover. By Thursday night, Bitcoin had climbed back to $113,500, nearly regaining its original position before the drop.

AI Stocks Bring Down the Broader Market

Just as Bitcoin was rebounding, an unforeseen new threat emerged. Major AI and data center firms, which had propelled the US stock market’s growth all year, released disappointing Q2 earnings. Their reports pointed to worries over high debt and dwindling profitability.

• CoreWeave (CRWV) experienced a 33.1% drop following its Q2 earnings report.

• Marvell Technology (MRVL) fell about 19% due to underperformance in its data center sector.

• Even NVIDIA (NVDA), a market leader that posted record Q2 revenue, suffered a 3.32% decline as negative sentiment spread.

This decline in AI stocks caused the Nasdaq to drop 1.32%, marking its steepest decline since the employment-driven fall on August 1st. Given Bitcoin’s strong correlation with the Nasdaq since June, its price fell by 3.72%.

This chain of events highlighted how interconnected today’s risk assets have become.

What’s Next for Bitcoin?

As Bitcoin faces challenges, market predictions are mixed. Some analysts maintain a bullish outlook, anticipating a quick recovery, while others worry about a potential drop back to $100,000.

Many experts expect the price to find support around $107,000, although some skeptics caution about a larger correction to $92,000 if the situation worsens.

This skepticism stems from Bitcoin’s recent sluggishness compared to Ethereum, which has attracted more market interest. Despite a similar 6.31% decline last week, Ethereum’s sentiment and upward momentum remain robust.

Once characterized by “unstaking fear,” the trepidation among Ethereum investors appears to have diminished. Tom Lee, chairman of Ethereum DAT company Bitmine, even suggests that ETH may reach $5,500 in a few weeks and hit $10,000-$12,000 by the end of the year. Such a rise would necessitate an extraordinary 100% price increase in four months from its current trading level of $4,483.

Two key macroeconomic events could influence the market in the coming week. The first is Tuesday’s US bond auction, which will see nearly $290 billion in short-term bonds entering the market. This could impact liquidity and exert additional pressure on Bitcoin.

The second event is Friday’s US non-farm payroll (NFP) release and unemployment figures. A weak NFP below 60,000 could heighten expectations for continued interest rate cuts, potentially favoring risk assets like Bitcoin.

Recent events underscore that Bitcoin’s price is increasingly linked to global liquidity and the broader US market rather than its internal factors. Investors should proceed cautiously during this period of heightened potential volatility.