Another Earthquake in the Cryptocurrency Market: Bitcoin Plunges Over 15%, Can Institutional Entry Turn the Tide?

Another Earthquake in the Cryptocurrency Market: Bitcoin Plunges Over 15%, Can Institutional Entry Turn the Tide?The "cryptocurrency market" has recently experienced another seismic shock. Bitcoin has been on a downward trend, falling from above $70,000 in late July to around $58,000 on August 16

Another Earthquake in the Cryptocurrency Market: Bitcoin Plunges Over 15%, Can Institutional Entry Turn the Tide?

The "cryptocurrency market" has recently experienced another seismic shock. Bitcoin has been on a downward trend, falling from above $70,000 in late July to around $58,000 on August 16. Notably, on August 5, Bitcoin dropped below $50,000, marking a new low in nearly a year, with a single-day decline of 15% and over 270,000 liquidations, totaling over $1 billion.

Bitcoin was not alone in this downturn; other cryptocurrencies have also suffered. Ethereum has seen a decline of over 20% in the past two weeks, SOL has dropped by about 20%, and Dogecoin has fallen by over 10%.

Industry experts attribute the recent volatility in the cryptocurrency market to a confluence of factors. Yu Jianing, co-chair of the Blockchain Special Committee of the China Communications Industry Association, points out that first, the US released a series of key economic data that fell short of expectations, sparking widespread concerns about the US economic outlook. Second, global capital markets have witnessed a significant decline, with the Nikkei 225 index plummeting 4451 points on August 5, marking the largest drop in Japanese stock market history, impacting investor sentiment and confidence internationally. Third, geopolitical instability often leads to increased uncertainty in financial markets, fueling risk aversion among investors and impacting global financial markets. Additionally, the rise of leverage trading has amplified price fluctuations. When the market begins to fall, forced liquidations of leveraged positions further accelerate the speed and magnitude of the decline.

"This round of price drops in cryptocurrencies not only highlights the high-risk nature of the virtual market but also reflects the profound impact of global economic changes on this market," said Zhao Wei, senior researcher at the OKX Research Institute, a digital asset trading platform. "The current international situation is marked by increasing instability and uncertainty. Global stock markets are under pressure, exchange rates are fluctuating sharply, and the fermentation of US CPI data and the Federal Reserve's rate cut expectations are driving investor demand for risk-averse assets, intensifying selling pressure in the cryptocurrency market. This has resulted in sharp fluctuations in cryptocurrencies, with Bitcoin taking the lead."

It's worth noting that in January this year, the US Securities and Exchange Commission (SEC) approved applications for 11 Bitcoin spot ETFs, including those from institutions like BlackRock. During this recent Bitcoin slump, the daily trading volume of Bitcoin ETFs surpassed $5 billion, with significant purchases from institutional investors. Public data shows that Goldman Sachs and Morgan Stanley bought over $600 million worth of spot Bitcoin ETFs in the second quarter of this year.

"The launch of Bitcoin spot ETFs has provided investors with an accessible entry point, particularly suitable for traders seeking Bitcoin exposure without directly holding the cryptocurrency," said Zhao Wei. "The influx of institutional investors brings more capital into the market, boosting liquidity. Additionally, institutional investors typically possess strong risk management capabilities and a long-term trading perspective, which can partially mitigate price volatility during market fluctuations. Furthermore, institutional investors have higher demands for compliance and transparency, potentially driving the market towards more regulated development."

However, the entry of institutional investors could also pose challenges to the decentralized nature of Bitcoin, potentially exacerbating market volatility. Yu Jianing believes that once a majority of Bitcoin is concentrated in the hands of a few institutions, their buying and selling activities will have a greater impact on the market, leading to a tighter linkage between the cryptocurrency market and traditional financial markets, ultimately affecting the rise and fall of Bitcoin prices.

Despite the ongoing declines, Bitcoin prices are still at relatively high levels compared to last year. What lies ahead for Bitcoin? "Bitcoin possesses financial, industrial, and technological attributes, and to some extent, it's also influenced by cyclical financial patterns. There's always a rise and fall," said Yu Jianing. "In the short term, Bitcoin prices are likely to continue exhibiting high volatility, especially in the current environment of rising global macroeconomic uncertainty, inflationary pressure, and geopolitical tensions. Market sentiment is easily influenced by external factors, leading to sharp swings in Bitcoin prices." In the medium to long term, Bitcoin's trajectory will still depend on its own development factors, including technological innovation, market demand, and regulatory policies.

Challenges from the regulatory front are particularly noteworthy. China maintains a strict regulatory stance on cryptocurrencies. Previously, the People's Bank of China and other departments issued several notices on preventing and controlling the risks of cryptocurrency trading speculation, clarifying that cryptocurrencies do not have the same legal status as legal tender and that cryptocurrency-related business activities are illegal financial activities. Since the beginning of the year, regulatory authorities in various regions have successively issued risk warnings, urging citizens to be vigilant, stay away from "cryptocurrency" trading speculation, illegal fundraising, and other illegal financial activities, and to prevent personal property losses. If they have participated in such activities, they should withdraw as soon as possible.

Yu Jianing stated that while some major economies currently adopt a relatively friendly attitude towards cryptocurrency assets, future policies may change. If stricter regulatory measures are introduced, it would negatively impact Bitcoin's liquidity and market acceptance, potentially leading to a significant price drop.

"Overall, the cryptocurrency market is fraught with high volatility and uncertainty. Investors should exercise rationality and caution, enhance their risk awareness, and avoid blindly following the crowd," Zhao Wei cautioned.