Bitcoin is dropping but is there more downside to come?

Written by Marcos Sotero, Analyst The UK Digital Asset Broker GlobalBlock

In spite of Nasdaq Up 0.21% yesterday, and both S&P 500 and Nasdaq futures showing gains this morning, bitcoin continues to fall. What are the factors contributing to this excessive selling?

Systemic issues in cryptocurrency infrastructure companies like Celsius

Celsius is one of the largest lenders and has the potential to become insolvent. The on-chain liquidity crunch has gotten even healthier over the past 24 hours, as they add to their cross-collar guarantees for 3 major positions. One such position that includes the Maker wBTC Vault now has a liquidation price of $14,000, which was previously around $22,500. This is because they paid off more of their debt in DAI.

There is clearly a high level of uncertainty at the moment, regarding the large exposure that the percentile has to do in proportion to the size of the curve pool.

I think many people are waiting for more information on their stance on stETH, so they can be confident to buy back – if a percentage deal is reached and posted, it could trigger a spike.

Crypto hedge fund bankruptcy like 3 AC (Three Arrows Capital)

This is one of the largest cryptocurrency hedge funds and one of the largest borrowers. At its peak, it held over $5 billion in assets and hundreds of thousands of ETH. If it collapses, this means that the lenders will be exposed to severe economic risks. The profit and loss difference between the amount they owe for what they get from liquidating their collateral is at risk.

Lenders will have to protect themselves by taking credit from the system which further reduces the utilization of crypto assets. I think it’s possible that more people still need to get off the lever.

Liquidity relaxation in global markets due to higher interest rates and QT

Quantitative easing has driven global markets and cryptocurrencies up over the past couple of years, but the opposite means that investors are forced to dump their positions, especially in risky assets. We have the Fed rate decision today at 7pm UK time, which will determine how aggressive it is and therefore the outlook for the next six months. I think a very strong Fed might be the best way forward in the markets, so that the Fed can resume QE sooner.

#Bitcoin #dropping #downside

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