Virtual Currencies Plunge Again: Margin Calls Surge, Risk Bells Ring

Virtual Currencies Plunge Again: Margin Calls Surge, Risk Bells RingRecently, the virtual currency market has once again faced a cold spell, experiencing a sharp decline across the board. On August 5th, Bitcoin fell consecutively below $55,000, $54,000, and $53,000, reaching a low of $52,000

Virtual Currencies Plunge Again: Margin Calls Surge, Risk Bells Ring

Recently, the virtual currency market has once again faced a cold spell, experiencing a sharp decline across the board. On August 5th, Bitcoin fell consecutively below $55,000, $54,000, and $53,000, reaching a low of $52,000. This represents a significant intraday drop of 10.49%, and a near 20% decline for the week. Ethereum's fall was even more drastic, with an intraday drop exceeding 20%, a near 30% loss for the week, and a more than 25% drop for the month. Other major cryptocurrencies were not spared, with SOL, Dogecoin, and others experiencing double-digit declines.

This virtual currency market crash was not accidental but rather a result of several factors.

Changes in market expectations are a key factor driving Bitcoin price volatility. The recent global stock market downturn has fueled risk aversion, putting immense pressure on the already volatile virtual currency market. While the central bank's interest rate cuts aimed to boost market confidence, they failed to reverse the pessimistic sentiment, further increasing market uncertainty.

The direction of market funds has also had a significant impact on Bitcoin prices. As prices retreated, a chain of liquidations ensued, accelerating the price drop. According to CoinGlass data, as of 11:16 AM on August 5th, over 210,000 accounts were liquidated in the past 24 hours, with a total liquidation amount exceeding $820 million.

The margin call wave is a result of investors' overly optimistic expectations for virtual currency prices. High-risk leveraged contract operations have further magnified the risk of market fluctuations. Leveraged trading allows investors to control larger positions with less capital, increasing potential profits but also amplifying potential losses. Once market prices move in an unfavorable direction, investors' losses can multiply, potentially leading to margin calls.

It is important to note that risks associated with virtual currency trading platforms have always existed, and have even been used for illegal activities such as money laundering. As early as 2020, multiple departments, including the People's Bank of China, issued warnings highlighting the common tactics of virtual currency trading platforms, namely first engaging customers through fraudulent transactions and then manipulating market prices and causing malicious outages to force customers into margin calls.

Yu Jianing, co-chair of the Blockchain Special Committee of the China Communications Industry Association and honorary chairman of the Hong Kong Blockchain Association, reminds investors that digital assets are high-risk investment assets. Their price fluctuations are much larger and faster than traditional assets, and their underlying rights mechanisms and technological foundations also differ significantly from traditional investment assets. He emphasizes that investors should never borrow money to invest, nor use high leverage. He discourages using "all-in" strategies for investing, and advises against using funds needed for daily life or business operations, as this could lead to severe consequences.

Yu Jianing suggests that before entering the digital asset market, investors should acquire sufficient knowledge and conduct risk assessments. They should avoid making emotional investment decisions due to short-term market fluctuations and remain calm and rational. Establishing a scientific risk management system is essential for protecting investors' interests. Setting reasonable stop-loss points, profit-loss ratios, regularly evaluating the risk status of investment portfolios, and adjusting investment strategies in response to market changes are all crucial.

The recent plunge in the virtual currency market serves as a stark reminder of the risks involved. Investors must recognize the high-risk nature of the virtual currency market, invest rationally, proceed cautiously, and not be swayed by short-term market fluctuations. This will help prevent irreversible losses.