Bitcoin, crypto sell-off amid broader market jitters

Bitcoin plunged more than 8% to around $25,500 on Thursday afternoon, its largest daily decline this year.

The crypto had been trading around $28,000 shortly before a Wall Street Journal report that SpaceX had sold all its holdings in 2022. That appears largely coincidental, however, as bitcoin had already begun its descent, reflecting several bearish on-chain metrics, when the Journal article was published at 3:22 ET.

SpaceX, which held $373 million worth of BTC in 2021 and 2022, reportedly sold the crypto after writing down the value of its holdings, similar to actions take by Tesla last year. 

Neither SpaceX nor CEO Elon Musk have commented on the report, and the exact timing of the sale is unknown. SpaceX did not immediately return a request for comment.

Analysts are skeptical about the timing and response to the news. Terrence Yang, managing director at Swan Bitcoin, told Blockworks, “The fact that SpaceX sold all or almost all its bitcoin should have been priced in by the market.” 

Other analysts pointed to overexposure and market exuberance over a potential US spot BTC ETF approval, which has reportedly been delayed until March of next year.

“Combined with nuance around how price action has been really apathetic and weak post-ETF announcements, the conclusion should have been short-term caution,” Jason Pagoulatos, head of markets at Delphi Digital told Blockworks. 

He said a lot of market participants were likely mispositioned because of that hype and were likely caught unaware, resulting from price action apathy. Thursday’s sell-off subsequently witnessed more than $200 million lost over a 24-hour period in long positions.

Panic sell

The bitcoin-led sell-off sent shockwaves through the market. Ether (ETH) fell 12% to $1,530, while dogecoin (DOGE), a Musk favorite, fell 15% to $0.056. Ether recovered from its five-month low, clawing back 9.7% following a Bloomberg rehashing of previously reported news that the SEC may greenlight a futures-based ether ETF. The industry’s second-largest digital asset remains suppressed — down about 6% over the past 24 hours as of 5:00 am ET.

Rich Rosenblum, CEO of market maker GSR, agreeing with previous takes on market exuberance, noted multiple factors were at play, including a strengthening US dollar and a reversal to this year’s tech rally. 

“Strong tech sector buying, BTC ETF filings, and the Ripple win brought a wave of macro buying to crypto in June,” he said. “But that bullishness is fading as macro markets have been reversing course in recent weeks,” he said.

“The simultaneous timing of Evergrande and the SpaceX news spooked the market, flushing out some futures length. Assets that rose the most over the last month were the hardest hit.”

The tech-heavy Nasdaq Composite fell 1.1% to 13,316 by mid-afternoon on Thursday, while the Dow Jones Industrial Average also slipped 0.8% to 34,474

The case for Evergrande

The crypto turmoil coincides with a broader sell-off in risk assets. Evergrande Group, China’s one-time second-largest property developer, filed for Chapter 15 bankruptcy in New York on Thursday. 

The firm’s extensive borrowing led to its default in 2021, triggering a severe property downturn in China’s economy. At the time, officials from the People’s Bank of China sought to downplay the risks to financial markets, arguing a contagion-wide effect had been contained.

According to Michael Rinko, research analyst at Delphi Digital, China is undergoing an extensive, state-driven deleveraging of the real estate sector. 

The situation has shaken confidence and demand across the nation, with recent indications such as a recent rate cut by the People’s Bank of China hinting at developing economic cracks.

Investment manager Cathie Wood of Ark Invest also weighed in, asserting that China is exporting deflation more extensively than many economists realize. 

An unfolding deflationary trend in China, exacerbated by recent defaults within the real estate and trust industries, may be nearing a 20% impact, she noted.

Wood also expressed concerns over the Federal Reserve’s aggressive rate hikes, which she contends have exacerbated global deflationary risks. The unprecedented 22-fold increase in the Federal Reserve’s funds rate may be impacting China first, with potential repercussions for the global economy to come later, the CEO added.

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