Bitcoin Plunges, Virtual Asset Market Sees Margin Calls: A Dangerous Game

Bitcoin Plunges, Virtual Asset Market Sees Margin Calls: A Dangerous GameEnding the recent rapid surge, a number of virtual assets, including Bitcoin, have once again encountered a plummeting market in the past two days. As of November 4th, Beijing time, the Beijing Business News reported that Bitcoin had surged to a high of over $74,000 at the end of October

Bitcoin Plunges, Virtual Asset Market Sees Margin Calls: A Dangerous Game

Ending the recent rapid surge, a number of virtual assets, including Bitcoin, have once again encountered a plummeting market in the past two days. As of November 4th, Beijing time, the Beijing Business News reported that Bitcoin had surged to a high of over $74,000 at the end of October. However, it has retraced since the beginning of November. As of November 4th, it has broken through levels of $73,000, $72,000, and $71,000, reaching a low of $67,000 in the early hours of November 4th.

As of 7:48 PM on November 4th, Bitcoin is trading at $68,864, up 0.68% in the last 24 hours but down 4.93% over the past week. With Bitcoin's plunge, other virtual assets in the market have also been affected. Ethereum is currently trading at $2,471, down 6.61% this week and 12.57% in the past three months. SOL is trading at $164, up 1.61% in the last 24 hours but down 9.1% this week. Dogecoin has experienced an even larger decline of 11.35% over the past week. In terms of total market capitalization, the latest total market capitalization of virtual assets is $2.27 trillion, down 0.95% over the past seven days.

Multiple complex factors contribute to the recent plunge of Bitcoin and other virtual assets.

The recent plunge of Bitcoin and other virtual assets is actually being impacted by multiple complex factors. Commenting on the reasons for the plunge, Yu Jianing, executive director of the Metaverse Industry Committee of the China Mobile Communications Federation and honorary chairman of the Hong Kong Blockchain Association, stated in an interview with the Beijing Business News that, on one hand, the upcoming US election has further amplified market volatility due to the uncertainty it brings. Compared with the Democrats' relatively conservative attitude towards crypto policies, Trump has expressed a more positive stance towards the crypto industry in his campaign platform for this election. This has led some market participants to anticipate a more friendly policy environment in the future when Trumps polls rise, fueling the previous surge. However, as the election situation fluctuates and market sentiment becomes unstable, investors expectations also fluctuate accordingly, triggering a short-term and intense market adjustment.

On the other hand, the complexity of the macroeconomic environment has also played a significant role in this plunge. Yu Jianing believes that, recently, the Federal Reserve's stance on monetary policy has not been completely clear. While the market generally expects further interest rate cuts, there is still a risk of inflation rebounding at present, making the Federal Reserve more cautious. The tug-of-war between investors' expectations and uncertainties about the Fed's policy has caused capital to flow frequently between virtual assets and traditional safe-haven assets, putting significant pressure on virtual asset volatility. Coupled with the increasing demand for safe-haven assets due to the slowdown in global economic growth, some capital has withdrawn from the higher-risk virtual asset market, further exacerbating the price decline.

In addition, the high leverage and contract trading mechanism in the virtual asset market have made market fluctuations even more intense. The short-term surges and plunges of Bitcoin and other virtual assets are often accompanied by the participation of a large amount of leveraged funds. During the current market retracement, the number of margin calls for long positions has significantly increased, further deepening the selling pressure.

Pan Helin, a renowned economist, states that Bitcoin and other virtual assets have high volatility, and their plunges and surges are common occurrences. Most of this is due to speculators with price dominance within Bitcoin manipulating the market.

140,000 Margin Calls Totaling $363 Million, Highlighting the Dangers of Leverage

It is worth noting that the decline in coin prices has also triggered margin calls. According to Coinglass, a cryptocurrency market data website, as of 9:00 AM on November 4th, 145,400 margin calls were liquidated in the virtual asset market over the past 24 hours, totaling $363 million. The majority of these were long positions. Margin calls are still continuing as prices fluctuate. As of 7:56 PM on the same day, 100,693 margin calls totaling $229 million have been liquidated in the past 24 hours.

In terms of the results of the margin calls, regardless of whether investors were bullish or bearish, many have incurred losses due to the intense price fluctuations. This number of margin calls, particularly reaching such a scale in a short period of time, clearly reflects the high volatility and leverage characteristics of the virtual asset market.

Yu Jianing points out that this phenomenon is closely related to the current market instability. When the degree of policy expectation realization changes, the market adjusts accordingly, exacerbating price fluctuations. As many investors have employed high leverage during periods of market optimism, once the market experiences a significant retracement, the risk of leveraged accounts rises sharply, leading to margin calls.

This is a dangerous game, even though many people know this, they are still gambling with a lucky mentality. Many cryptocurrency industry insiders told the Beijing Business News with a sense of helplessness. However, it is important to note that in virtual asset trading, high leverage not only amplifies potential gains but also significantly increases risk. Many investors tend to use leverage to achieve greater returns when they are bullish or bearish, but if the market moves against them, the risk of margin calls increases significantly.

As Yu Jianing points out, in the virtual asset market, due to the high liquidity of contract trading, low entry barriers, and widespread use of leverage, margin calls are not uncommon. This large-scale margin call demonstrates investors' underestimation of market volatility, particularly when anticipated rises or falls do not materialize, often leading to widespread losses.

Yu Jianing further suggests that investors involved in such trades should pay close attention to several key risks. The first is high volatility. It is important to remember that virtual assets are high-risk investments, and asset price fluctuations and speed are significantly different from traditional assets. Their underlying rights mechanisms and technical foundations are significantly different from traditional investment assets.

Another risk is the reversal of market expectations. It is crucial to avoid blindly following the crowd when market sentiment is euphoric. Moreover, investors should prioritize liquidity risk. In a highly volatile environment, intense price fluctuations often lead to insufficient liquidity, further amplifying losses.

Bitcoin margin calls are commonplace. Due to the high volatility of Bitcoin, many Bitcoin investors have set limited positions, ending their trades through margin calls and cutting losses in time. The main participants in Bitcoin and other asset trades are professional investment institutions and hedge funds. Ordinary investors lack the risk control capabilities and risk tolerance, so they should exercise caution, Pan Helin states.

Multiple Underlying Risks Still Require Vigilance

Industry insiders believe that, overall, the virtual asset market has price fluctuations far exceeding those of traditional financial assets, posing significant risks and challenges for investors. In addition to high-leverage trading risks, Yu Jianing reminds investors to fully acknowledge the compliance and regulatory risks. The virtual asset market is still in a stage of rapid global development and gradual regulatory improvement. The regulatory policies of different countries are constantly changing, and even stricter restrictions may be imposed, potentially leading to short-term intense market fluctuations.

Secondly, there is the risk of market manipulation. Due to the structural characteristics and dispersed liquidity distribution of the virtual asset market, market manipulative behavior occurs frequently. Large-scale "dumping" or "pumping" actions can trigger intense price fluctuations, causing retail investors to chase rallies at highs or sell at lows, further exacerbating losses. Therefore, investors need to be vigilant and avoid short-term surges or plunges driven by a few large players.

Furthermore, technical risks must be taken seriously. Virtual assets rely on emerging technologies such as blockchain. However, this field is technically immature, with risks such as hacking attacks and smart contract vulnerabilities. Such technical vulnerabilities can lead to asset theft or lockouts, resulting in severe economic losses.

Emotional management is also crucial. In the face of a highly volatile market, investors need to maintain a calm and rational mindset to avoid impulsive decisions. Frequent trading and emotional decisions are often the main causes of losses.

It is foreseeable that virtual assets, including Bitcoin, will continue on a roller coaster ride of surging and plummeting. Industry insiders point out that investors need to correctly understand the essential attributes of virtual assets and related business activities, establish a correct investment philosophy, and choose investment and wealth management products from reputable financial institutions. Do not participate in virtual asset trading speculation, do not be fooled by claims of high returns and high yields, and maintaining rationality and caution is key.

Beijing Business News reporter Liu Sihong