Bitcoin had been sitting relatively still for weeks until yesterday, when it quickly dropped to lows not seen in two months.
The largest cryptocurrency by market cap at the time of writing was trading for $26,060 per coin, CoinGecko data shows, marking an over 11% dip in the past seven days.
It’s still up from the lowest point it touched on Thursday, $25,649, but still well below the highs above $31,000 it hit in June.
So, after a period of little volatility from mid-June into August, what caused the flash crash yesterday?
A lot of it has to do with the wider economy—including American regulation and institutional investors being unsure—as well as low liquidity, experts told Decrypt.
According to data firm Kaiko, liquidity in the Bitcoin market has been dropping for some time now on major exchanges like Binance and Coinbase. This means that when big holders want to shift their holdings, the rest of the market will feel it. And feel it they did: at one point yesterday, Bitcoin shed 7% of its value in 20 minutes.
“We don’t know who dumped Bitcoin and triggered this cascade liquidation, but it's less likely OG miners or U.S. investors,” CryptoQuant CEO Ki Young Ju said.
The “cascade liquidation” of over $1 billion was caused by spooked investors—major ones too—wanting to shift risk following the news that China’s Evergrande Group property developer filed for Chapter 15 bankruptcy protection in New York.
“Massive property developers' movements and problems in real estate could move into other parts of the economy,” Bob Bodily, CEO of Ordinals marketplace Bioniq, said.
He noted that “market illiquidity, and prices moving sideways for a while” also contributed to the flash crash. Meanwhile, he categorized a Wall Street Journal report that Elon Musk’s SpaceX wrote down the value of its Bitcoin holdings as a rumor—"but pretty soon everybody was talking about it." He said that it may have helped contribute to the drop in prices.
BlackRock, the world’s biggest asset manager, helped spur a June market bull run when it submitted an application for a spot Bitcoin crypto exchange-traded fund (ETF) to the U.S. Securities and Exchange Commission.
Investors were optimistic. But the SEC doesn’t appear to be in a rush to approve any of the firms applying to it for such a product.
CoinShares Head of Research James Butterfill said “markets are now coming to terms with the realization that an immediate SEC approval for a Bitcoin ETF in the U.S. is unlikely,” and so investors are more likely to want to shift their crypto holdings.
He added that this, combined with China’s woes and investors being “highly attuned to regulatory decisions,” impacted the price of the biggest digital asset. Bodily, meanwhile, suggested that "high volatility" for Bitcoin will continue amid the "fairly shaky" macro environment.
In other words, despite a relatively sleepy summer of late, Bitcoin's wild price swings may be here to stay in the short term.