Bitcoin Plunges Over 10%, Triggering Crypto Market Panic: A Deep Dive into Market Volatility and Future Trends

Bitcoin Plunges Over 10%, Triggering Crypto Market Panic: A Deep Dive into Market Volatility and Future TrendsBitcoin (BTC) experienced a sharp decline in the early hours of March 4th, plummeting below $83,000 to a low of $82,420, representing a drop of over 10% within 24 hours and sparking widespread market panic. This downturn affected not only Bitcoin but the entire cryptocurrency market, with multiple cryptocurrencies experiencing significant price drops and a dramatic shift in market sentiment

Bitcoin Plunges Over 10%, Triggering Crypto Market Panic: A Deep Dive into Market Volatility and Future Trends

Bitcoin (BTC) experienced a sharp decline in the early hours of March 4th, plummeting below $83,000 to a low of $82,420, representing a drop of over 10% within 24 hours and sparking widespread market panic. This downturn affected not only Bitcoin but the entire cryptocurrency market, with multiple cryptocurrencies experiencing significant price drops and a dramatic shift in market sentiment. Alternative data reveals that the Crypto Fear & Greed Index plunged from 33 to 15 on March 4th, indicating "extreme fear." At the time of writing, Bitcoin is priced at $83,882.3, representing a daily decline of 9.18%. Coinglass data shows that nearly 300,000 traders globally were liquidated in the past 24 hours, with total liquidations reaching $1 billion.

This sharp fall in Bitcoin and cryptocurrency prices followed a significant surge the previous day, highlighting the inherent volatility and fragility of the cryptocurrency market. Wilkie, a researcher at Tron, points out that the decline reflects the high leverage employed in the market. Numerous investors chased price gains at high levels, resulting in large-scale liquidations during the price correction and further amplifying the drop. The concentrated liquidation of long positions acted as an "accelerator" for the decline. This "rollercoaster" behavior is not unprecedented; significant market volatility has become the norm.

The dramatic market fluctuations are closely linked to the release of Donald Trump's executive order on digital assets the previous day. On March 3rd, Trump stated that his executive order directed a presidential task force to establish a strategic reserve of cryptocurrencies, including Bitcoin, Ethereum (ETH), XRP, Solana (SOL), and Cardano (ADA). This news triggered a rally across the cryptocurrency market, with Bitcoin reclaiming the $90,000 range (a surge of over 9%), Ethereum rising over 11%, XRP and SOL exceeding 20%, and ADA soaring over 70%. However, Aurelie Barthere, Chief Research Analyst at blockchain analytics firm Nansen, pointed out that the rally might be temporary due to the lengthy approval process required to establish a US cryptocurrency reserve. This proved true, as Bitcoin and other cryptocurrencies began a collective decline in the early hours of March 4th, almost entirely erasing the previous day's gains.

Wang Yingbo, a digital economy scholar at the Shanghai Academy of Social Sciences, believes the immediate trigger for the drop was the unwinding of short-term speculation fueled by Trump's "cryptocurrency reserve" announcement and the liquidation of leveraged long positions. Furthermore, macroeconomic factors, such as the delayed expectation of Fed rate cuts, amplified market volatility, strengthening the correlation between Bitcoin and traditional financial assets (like US equities) and weakening its independence.

It's noteworthy that the cryptocurrency market has exhibited unusually high volatility recently. During Trump's US presidential campaign, market expectations drove Bitcoin's price from $65,000 in early November 2024 to over $100,000 in less than a month, repeatedly setting new all-time highs, followed by a subsequent correction. In late January, after again breaching $100,000, Bitcoin experienced a sustained decline, bottoming out in the $70,000 range. A report from Bitfinex revealed that Bitcoin plunged 17.39% in February 2024, marking its worst February performance since 2014. Last week, Bitcoin experienced dramatic volatility, plummeting 18.4% to a low of $78,617 before rebounding. Simultaneously, Bitcoin ETF outflows hit a record high.

Gao Chengyuan, Chairman and CEO of Tiao Yuan Consulting, stated that the significant volatility in Bitcoin prices is a market characteristic, and investors need to be risk-aware, diversify their assets, and avoid over-investment. They should also monitor macroeconomic policies and regulatory developments, adjust investment strategies accordingly, and choose compliant platforms for trading to ensure fund security.

Trump's highly publicized Bitcoin strategic reserve plan hasn't garnered widespread institutional support. Bernstein, a Wall Street investment bank, stated in a report that Bitcoin's position as the US government's "digital gold" is expected, but the rationale for including Ethereum and Solana in the reserve is unclear. The report suggests that there's a possibility the US government could convince Congress to accept Bitcoin as a new digital gold or global store of value, but using Federal Reserve or Treasury funds to purchase other blockchain assets would be difficult to implement. Investment bank TD Cowen also expressed that Trump's statement lacked coordination and the funding source was unclear.

Wang Yingbo argues that including cryptocurrencies in national reserves could attract sovereign funds, but political cycles may lead to policy reversals. The US, through regulation and taxation, is tightening its control over the crypto market, attempting to build a "crypto dollar hegemony," but this essentially represents the erosion of decentralized principles by centralized forces.

Recently, the US Securities and Exchange Commission (SEC) has terminated or paused several enforcement actions initiated by its previous leadership, signaling a move towards a more friendly regulatory approach. On February 27th, the SEC and Sun Yuchen, along with three of his companies, filed a joint motion to pause a case to explore potential settlement options. On March 3rd, the SEC agreed to drop its lawsuit against cryptocurrency exchange Kraken. On March 4th, the SEC formally closed its over three-year investigation into Yuga Labs.

Wilkie notes that the crypto market has, in past years, seen major narrative-driven cycles, fueled by high-quality assets that generate market enthusiasm and price increases. However, for over a year, the crypto industry has lacked a shared focal narrative. The previously highly anticipated Real-World Asset (RWA) tokenization has progressed slowly, and other specific application scenarios have also faced challenges in implementation. He believes that in the long term, if the regulatory framework clarifies, the US SEC crypto working group makes progress, and the global economic environment improves, the market may see a recovery.

Since the approval of spot Bitcoin ETFs, cryptocurrencies have become deeply integrated with traditional finance, and the drawbacks are becoming increasingly apparent. Wang Yingbo states that cryptocurrencies are transitioning from "tools that disrupt traditional finance" to "derivatives of traditional finance," a contradiction that will persist for a long time. Traditional financial institutions are absorbing large quantities of spot crypto through ETFsfor example, BlackRock holds over 300,000 BTCleading to stratified market liquidity and increased price manipulation risks. Furthermore, ETF custodians, such as Coinbase, exert centralized control over tokens, contradicting the "decentralized" ethos of cryptocurrencies and potentially creating systemic risks.