Jessy, Jinse Finance
Since December 8, the cryptocurrency market has seen three consecutive days of decline, with the overall market value dropping from a peak of $3.7 trillion on December 8 to $3.45 trillion on December 10. What factors have led to this decline during a sustained bullish period?
News Aspects:
Google Quantum Chip Progress: In the early hours of December 10, Beijing time, Google launched its latest quantum chip 'Willow' and claimed to have made significant achievements. There are concerns that this chip could pose a threat to the security of cryptocurrencies: Mining cryptocurrencies like Bitcoin involves solving complex mathematical problems to confirm transactions and record them on the blockchain. The demand for mining power is related to the number of 'miners' in the network and their power levels. Google's quantum chip 'Willow' has extremely powerful computing capabilities, completing a 'standard benchmark calculation' that would take today's fastest computer at least 10^25 years to finish in less than five minutes. If applied to mining, it could greatly enhance mining efficiency, making traditional mining machines difficult to compete with in cost and efficiency. On the other hand, the security of cryptocurrencies relies on mathematical problems in cryptography, such as elliptic curve encryption and RSA encryption. These algorithms are based on the assumption that current computational power cannot solve them within a reasonable time. Quantum computers can run Shor's algorithm and other quantum algorithms specifically designed to crack encryption technologies based on large number factorization. Once quantum chip technology matures enough, its powerful computing capacity could potentially break existing cryptocurrency encryption systems, leading to the exposure of users' private keys. All these factors have affected investors' confidence, leading to a market downturn.
Citron Research Shorts MicroStrategy Stock: Large institutional purchases of Bitcoin by MicroStrategy and others have somewhat driven up Bitcoin prices but have also raised market concerns. Notable firm Citron Research pointed out that MicroStrategy is 'overheated' and shorted its stock, causing MicroStrategy's stock to drop 20% in a single day. MicroStrategy's stock has been referred to as shadow Bitcoin, and the institutions' shorting behavior has also somewhat influenced market sentiment in the cryptocurrency space.
Microsoft will not invest in Bitcoin for now: Microsoft's major shareholders opposed the company's Bitcoin investment proposal on December 10 local time. Earlier, the Microsoft board had urged shareholders to reject a proposal from the National Center for Public Policy Research to invest 1% of the company's total assets in Bitcoin to hedge against inflation.
Market Aspects:
Long-term investors take profits:
Recently, some KOLs and institutions have been continuously selling. For example, on December 4, it was reported that Meitu sold off the Bitcoin and Ethereum they had accumulated, cashing out approximately $180 million. These long-term holders accumulated substantial profits during the earlier market uptrend, and as signs of market correction appeared, they chose to take profits. The surge in sell orders further exacerbated market turbulence, leading to a significant price drop.
Market sentiment is overheated, with a decline in trading volume in the past two days: According to Coinglass, both contract and spot trading volumes peaked on December 8 and 9, while overall trading volume in the cryptocurrency market saw a certain degree of decline on the 10th and 11th.
Similarly, on the 8th and 9th, market sentiment was heated, with long positions reaching an all-time high. During the overall market decline, the liquidation volume in the 24 hours from the 9th to the 10th hit a new high for this bull market at $1.712 billion, of which long positions accounted for $1.55 billion and short positions for $162 million. This also indicates that market sentiment is overheated, with too many long positions. A market correction can help liquidate some leverage, making future price increases healthier and more sustainable.
Macroeconomic Aspects:
US CPI data will be released: The US will release the CPI data for November at 8:30 AM local time on December 11. The recent volatility in the cryptocurrency market is normal before the data release. This is because the CPI is an important indicator of inflation, and the US will determine the interest rate cut in December based on inflation conditions. The extent of the rate cut and the degree of prevention will affect people's preferences for risk assets.
Strengthening US Dollar: Recently, the US dollar has strengthened, with the dollar index closing at 106.11 and 106.1926 on December 9 and 10, respectively, up 0.09% and 0.08% from the previous trading day. A stronger dollar is often seen as a signal of relative strength in the US economy, but it may also indicate certain uncertainties in the global economy. In this scenario, investors' risk appetite generally decreases.
At the same time, the strengthening dollar has increased the attractiveness of dollar-denominated assets, such as US Treasury bonds, as risk-free assets see rising yields. Investors seeking higher returns and asset safety may shift funds from risk assets like cryptocurrencies to dollar assets, thereby exerting downward pressure on cryptocurrency prices.
