It is said that liquidity is the lifeblood of the currency circle, so what is the reason behind the sharp decrease in Bitcoin liquidity?
1. Market cooling: The uncertain global economic outlook, rising inflation, the uncertain attitude of the Federal Reserve, geopolitical tensions and other factors have made investors cautious about risky assets. In addition, the supervision of various countries has become stricter, especially the US SEC has increased its scrutiny of crypto exchanges
2. Market maker manipulation: whale holders create panic by reducing trading volume in order to collect chips at a lower price. At the same time, the market makers take advantage of the opportunity of the plunge in trading volume to clean up most of the high leverage and undetermined leeks through "washing".
3. Fund diversion: Funds are rotating to other crypto assets or protocols such as Ethereum, DeFi, NFT, Layer 2 solutions, and the open interest in the Bitcoin futures and options market has dropped sharply
4. Cryptocurrency circle sentiment FUD: Due to the recent plunge, FUD sentiment has spread rapidly, and people dare not take action, dare not buy, dare not sell, and panic
Then what are the external and internal factors that really affect this round of bull market
1) External factors: Mainstream crypto assets cater to the rhythm of the external environment. In recent years, it is not difficult to find that Bitcoin and crypto assets are increasingly affected by the external environment, among which the most influential is the relevant policies of the Federal Reserve. Behind every high and low market, it is almost always because of the main external factors such as the macro environment.
The Fed's interest rate hike will cause a large amount of global funds to flow back to the United States, leading to the rise of the US dollar and the decline of the prices of commodities, precious metals and foreign exchange markets denominated in US dollars. On the contrary, when the Fed cuts interest rates, the US dollar exchange rate falls, which is conducive to improving the performance of commodity prices. After the Fed's interest rate hike, interest rates and exchange rates fall, and US dollar liquidity gradually recovers, bringing rebound momentum to the market. Due to the international status of the US dollar, the global economy will be affected accordingly
Internal factors: New narratives are the real bull market engine. In fact, the reason why more and more people have been able to gather together to conduct "large-scale human society" experiments like Bitcoin is because of consensus, and consensus needs a main narrative to provide support, such as "digital gold", just like the past few rounds of crypto bull markets have new narratives behind them
Behind the new narrative are the new "bright spots" of blockchain and Web3 explored and discovered by KOLs and innovative entrepreneurs in the crypto community, and more and more solutions. They not only solve the problem of high cost and low efficiency of blockchain, but also solve the landing problem of crypto applications like DeFi and GameFi, bringing funds and a steady stream of new users to the entire crypto industry.
Of course, innovation will not stagnate. More and more new narratives are empowering the crypto industry, bringing stronger momentum, becoming the source of the intrinsic value of the crypto industry, and driving the market higher.
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