The move comes on the heels of a market-wide downturn that has already set BTC surrender records in the wake of the FTX-induced infection.
Stocks started the day slightly higher after losing nearly 1,000 points since the beginning of the week. So far, the price of bitcoin remains closely correlated with stocks and stock market investors are concerned about the policy discussions that will take place at the upcoming Federal Open Market Committee (FOMC) meeting on December 13th.
Bitcoin correlation with stocks. Occult research
While some analysts believe that Bitcoin’s bottom is near, others believe that further declines are on the way due to BTC’s close correlation with DXY and stocks.
Let’s investigate the main reasons for the Bitcoin price drop today.
On-chain data indicates historical “peak realized losses”.
Bitcoin price is reacting to almost a year-long downtrend and the recent stress caused by the FTX bankruptcy. The recent decline in prices came right as analysts predicted that the bottom of the bear market had been found.
Data from Glassnode shows that Bitcoin has reached an all-time low in realized profit-to-loss ratio.
Bitcoin realized profit and loss. Source: Glassnode
While this data may indicate that a recovery in the Bitcoin price is possible, the market as a whole could continue to compound these losses. In general, such large losses may lead to the removal of some entities from the market altogether, thus hindering the recovery.
Rising interest rates in the US and abroad are weighing on the price of Bitcoin
Based on the Consumer Price Index report, US inflation increased by 0.4% in October compared to the previous month. Inflation was a decisive factor in raising interest rates.
The Consumer Price Index report – the most widely followed measure of inflationary pressure in the US – rose 7.7% in October compared to the same month a year ago.
With the upcoming CPI report event on December 13th, Bitcoin may continue to see volatility as the overall market reacts to the numbers.
The FTX infection has reduced liquidity and reduced liquidity in the cryptocurrency market
In the past two weeks, leaked balance sheet documents and other spreadsheets have highlighted the high degree of mixing that was occurring between market makers like FTX and Alameda and other major players in the crypto sector.
DCG’s Grayscale Bitcoin Trust currently owns 633,000 BTC, making it one of the largest holders of digital assets. Genesis Trading is another DCG company exposed to FTX and the recent volatility has left a clear $1 billion hole on its balance sheet. The fact that Genesis is struggling to secure financing, and the indication that it may have no other choice but to file for bankruptcy, is making investors think the next black swan event is in the making.
BTC holdings in greyscale. Source: Coinglass
As market makers and companies struggle to maintain operations, the repercussions are felt directly by lower trading volumes. According to Arcane Research, on November 29, real spot volume in BTC reached $510 million, the lowest level not seen since October 2020. It should be noted that the statistic does not include Binance.
BTC-USD real daily volume. Source: Arcane Research
Related: Why is the cryptocurrency market going down today?
Further evidence of liquidity pressures in the cryptocurrency market came from Blockstream, one of the largest bitcoin mining companies, which raised funding at 70% below the company’s valuation. This is further evidence that the fallout from FTX may continue to ripple through large companies.
SoFi is also under pressure from regulators. The Senate Banking Committee warned the company in letters on November 21 about its compliance with banking standards. SoFi requested a response by December 8th. In addition to the letter to SoFi, the Senate Banking Committee sent a letter to Treasury Secretary Janet Yellen to step in and minimize the fallout.