Jessy, Golden Finance
Since December 8, the crypto market has fallen for three consecutive days, with the total market capitalization dropping from the peak of $3.7 trillion on December 8 to $3.45 trillion on December 10. What factors caused this decline during a sustained upward trend?
News aspect:
Google's quantum chip progress: In the early hours of December 10, Beijing time, Google launched its latest quantum chip 'Willow' and claimed to have achieved significant accomplishments. There are concerns that this chip might pose a threat to the security of cryptocurrencies: Mining cryptocurrencies like Bitcoin is done by 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 computing power. The Google quantum chip 'Willow' has extremely powerful computing capabilities, completing a 'standard benchmark calculation' that would take the fastest current computers at least 10^25 years to finish in less than five minutes. If applied to mining, it would greatly enhance mining efficiency, making traditional mining machines difficult to compete with in terms of cost and efficiency. On the other hand, the security of cryptocurrencies relies on mathematical problems in cryptography, such as elliptic curve cryptography and RSA encryption, which are based on the assumption that current computing power cannot break them in a reasonable time. Quantum computers can run quantum algorithms like Shor's algorithm, specifically designed to break encryption technologies based on large number factorization. Once quantum chip technology matures, its powerful computing capabilities could potentially crack the existing cryptocurrency encryption systems, leading to the leakage of users' private keys. These factors collectively affect investor confidence, resulting in a market decline.
Citron Research shorts MicroStrategy stock: Large institutions like MicroStrategy's massive purchases of Bitcoin have driven up Bitcoin's price to some extent, but they have also raised market concerns and worries. The well-known institution Citron Research pointed out that MicroStrategy is 'overheated' and shorted its stock, resulting in a 20% decline in MicroStrategy's stock in one day. MicroStrategy's stock has been referred to as shadow Bitcoin, and the institutions’ short-selling actions on MicroStrategy stock have also affected the sentiment in the crypto market to some extent.
Microsoft will not invest in Bitcoin for the time being: Major shareholders of Microsoft opposed the company's Bitcoin investment proposal on December 10 local time. Earlier, the Microsoft board urged shareholders to reject a proposal from the National Center for Public Policy Research suggesting that the company invest 1% of its total assets in Bitcoin to hedge against inflation.
Market aspect:
Long-term investors taking profits:
Recently, some KOLs and institutions have been continuously selling. On December 4, it was reported that Meitu sold the Bitcoin and Ethereum they had accumulated earlier, cashing out about $180 million. These long-term holders accumulated substantial profits during the earlier market rally, and as signs of market adjustment appeared, they chose to take profits, leading to a surge in sell orders that further intensified market volatility, causing prices to drop significantly.
Market sentiment overheating, decrease in trading volume in recent days: According to Coinglass data, trading volumes for both contracts and spot reached recent peaks on December 8 and 9, while the overall trading volume in the cryptocurrency market saw a decline on the 10th and 11th.
Similarly, on the 8th and 9th, market sentiment was extremely hot, with long positions reaching an all-time high. During the overall market decline, the liquidation amount in the 24 hours from the 9th to the 10th hit a new high for this bull market, reaching $1.712 billion, with long position liquidations at $1.55 billion and short position liquidations at $162 million. This also indicates that market sentiment is overheated, with too many long positions. A market correction to clear some leverage can lead to a healthier and more sustainable rise in the future.
Macroeconomic level:
U.S. CPI data will be released: The U.S. will announce the November CPI data at 8:30 AM local time on December 11. Before the data is released, the volatility in the crypto market is considered normal. The CPI is an important indicator of inflation, and the U.S. will determine the interest rate cut in December based on the inflation situation. The extent of the interest rate cut and the waterproofing will affect people's preferences for risk assets.
Strong dollar: Recently, the 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 strong dollar is often seen as a signal of a relatively strong U.S. economy, but it may also indicate some uncertainty in the global economy. In this context, investors' risk appetite generally decreases.
At the same time, the strong dollar has increased the attractiveness of dollar assets, such as U.S. Treasury bonds, where the yields of risk-free assets are rising. Investors seeking higher returns and asset safety will transfer funds from risk assets like cryptocurrencies to dollar assets, thereby putting downward pressure on cryptocurrency prices.
