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The big sell-off did not change the fundamentals of BTC?



Over the past two weeks, cryptocurrencies have been hit by a double whammy of negative headlines. First, Elon Musk kicked things off by announcing that Tesla would no longer accept bitcoin (BTC) payments and adding a key tweet about bitcoin’s consuming energy usage. Then an even bigger wave hit: news that China was cracking down on bitcoin miners and traders. The resulting sell-off was painful in the short term. But in the long term, the foundation of cryptocurrencies is being established and a huge shift is taking place. In the past few days, there have been reports that China's State Council, has announced regulation of bitcoin mining and trading. While China has a long history of regulating cryptocurrencies, this is the first time bitcoin mining has been specifically mentioned at a State Council committee meeting. While it is unclear exactly what type of enforcement action will be taken, the comments are said to have caused some Chinese miners to sell their mining equipment and bitcoins. Other miners have already begun to migrate out of China, restarting their operations in other countries. On-chain data underpins these reports. The amount of BTC transferred out by miners has soared to the highest level since March 2020, which means that some miners may be moving their BTC for sale. While there has been no major surge in funds flowing directly from miner wallets to exchanges, the net outflow supports reports that miners have been selling on OTC. Compound Proposal 114 passed and will be implemented within two days: Jinse Finance reported that Compound Governance issued a document stating that Proposal 114 (Proposal 141) was passed with 618,747 votes, meeting the quorum, and the proposal will be implemented within two days. It is understood that Proposal No. 114 proposes to modify the borrowing ceiling and mortgage coefficients of the five Compound v2 markets, involving BAT, COMP, SUSHI mortgage coefficients and LINK, UNI borrowing ceiling adjustments. [2023/1/1 22:19:19] For an in-depth analysis of how we arrived at miner metrics, and a further breakdown of the implications for potential Chinese miner migration, please see our latest research report. If those reports are true, it helps explain at least part of the sell-off. But it also has a big impact on the future of Bitcoin. Over the years, some investors have expressed concern about the relatively high concentration of BTC miners in China. Specifically, China’s ability to potentially influence Bitcoin has often been questioned, as well as the relatively high carbon emissions from some of China’s coal-powered mining operations. If the Chinese government does crack down on mining, much of the computing power currently concentrated in China will end up being redistributed abroad. The shift in power distribution will not only make the Bitcoin network more decentralized, but it will also address the last big criticism holding BTC back. QuickSwap launched the lending product QuickSwap Lend: On October 10th, Polygon ecological DEX QuickSwap launched the lending product QuickSwap Lend, including the public lending market, the IB market, and the IB stablecoin market. Users can lend assets by staking assets in the open lending market. In the IB market and the IB stablecoin market, users can lend USD stablecoin MAI through mortgage-backed assets and stablecoin assets respectively. [2022/10/10 10:29:52] The computing power (7-day average) has also dropped by about 21% in the past 10 days. This could be a sign that Chinese miners are being forced offline. If these miners are indeed forced to migrate, we may see a large hash rate correction in the near future as mining operations start to come back online. However, there is a misconception that daily hashrate figures can provide an authoritative view on miners pulling the plug. In fact, it is impossible to get an accurate daily change figure only by looking at the data on the chain. In a special report, Lucas Nuzzi, head of network data at Coin Metrics, analyzes how hashrate is measured, including potential pitfalls. Additionally, he details how our miner metrics are derived and dives into the impact of China's regulatory actions. Read the full report here. Bitcoin miners are fleeing China. Gerber Kawasaki CEO: The arrival of cryptocurrencies will subvert traditional finance in a way they can't imagine: Golden Finance reported that Ross Gerber, CEO of Gerber Kawasaki, tweeted that there is no doubt that the work we are working with Gemini will change the financial system. The arrival of cryptocurrencies will disrupt traditional finance in ways they could never have imagined. [2022/4/24 14:44:39] On May 12, after Musk tweeted, the exchange’s BTC net inflow (14-day average) began to surge, which means that the amount of BTC withdrawn In comparison, the amount of BTC deposited into exchanges is relatively high. By the 19th, net inflows to exchanges had reached their highest level in years. The sudden inflow suggests that some investors are moving BTC to exchanges for sale. But there were several other factors that contributed to the large net inflows. Breaking down net flows by exchange, Binance easily accounts for the largest portion. This is not surprising considering Binance is the largest exchange in the world. Binance also has a large futures market, so some of the inflows may have been used to cover collateral on leveraged positions. But looking at the net flows of other exchanges reveals an interesting comparison. Huobi’s net flow dropped sharply, implying a relatively large net outflow. This again dovetails with reports that China-based exchanges such as Huobi may be threatened with investigations. Binance appears to be less threatened because its official headquarters are not in mainland China. The crackdown on Chinese exchanges and exchanges could be another factor in the diversion of bitcoin, should those supplies end up leaving China and into the hands of other countries. Ripple Appoints Former Obama Senior Advisor Michael Warren to Its Board of Directors: Jinse Finance reports that the blockchain company Ripple has appointed Michael Warren to its board of directors. A senior adviser to the White House, he also served as director of the National Economic Council during the Clinton administration and is currently managing director of the global consulting firm Albright Stonebridge Group. Warren said in the statement that he hopes to work with Ripple to move forward in cryptocurrency regulation, help Ripple expand its influence in global markets, and promote the adoption of the company's products as part of its growth strategy. [2022/3/27 14:20:08] Although the selling pressure from China has been the main reason for the price drop in the past few days, the selling started long before. On May 12, Elon Musk sent an initial shockwave through the market when he tweeted his concerns about Bitcoin's environmental impact. Musk later clarified his comments, saying Tesla did not sell any BTC. But by then, the sell-off had already begun. After Tesla publicly announced the purchase of $1.5 billion in BTC in early February, an influx of retail investors helped push the price to an all-time high of over $63,000. But now, after Tesla's change of attitude, many new entrants seem to have pulled out. Much of the supply that has been bought up in the Tesla hype wave over the past few months is going into the hands of stronger users. GameStop and Immutable X launched a $100 million joint fund to invest in NFT game projects: News on February 3, according to a statement released on Thursday, GameStop and Immutable X are cooperating to launch a $100 million joint fund for Invest in NFT game projects. Robbie Ferguson, co-founder of Immutable X, a layer-2 scaling platform built on Ethereum, said that the two parties will also cooperate to provide support for GameStop's upcoming blockchain-based marketplace. The Sydney-based startup has yet to officially announce which game projects will receive funding, but Ferguson expects them to be "mid-market (game) studios looking to make a big move into the NFT space." (Blockworks) [2022/2/3 9:29:50] The graph below shows the recovered BTC supply (i.e. sent as part of a transaction) after a period of holding. After May 12, the number of BTC recovered after being held for 90-180 days began to soar. By May 19, the supply recovered after being held for 30-90 days also peaked. This means that a large amount of supply flowing to exchanges was likely bought between December and May 2020, with a significant amount bought after February. Many of these sellers appear to have sold at a loss. The BTC spend to output profit ratio (SOPR) fell to 0.977 on May 19, the lowest level since April 2020. BTC SOPR is the ratio of the price of Bitcoin when UTXOs were spent to the price when they were created. In other words, it is a proxy for selling price divided by price paid. An SOPR below 1 indicates that investors are selling at a loss. This suggests that some investors who bought recently, when BTC prices were near all-time highs, have capitulated and are selling their positions. Historically, SOPRs below 1 have corresponded to local cycle bottoms. However, it is important to note that SOPR is an approximation and not an exact measure of profitable trades. Not every bitcoin transaction is a transaction, which means not every transaction represents a profit from a sale or sale. In the months leading up to the crash, the cryptocurrency market was underpinned by record levels of leveraged futures. However, as the price of BTC fell, a large amount of leverage quickly began to liquidate. On May 19, when the price unexpectedly dropped below $40,000, there was a relatively large liquidation of Bitcoin. When BTC fell to $39,000, a large number of long positions were liquidated, starting a temporary price spiral. Leverage is when traders effectively borrow money to increase their exposure to an asset. Leverage increases potential returns, but it also magnifies risk. If the price suddenly drops, traders may not have enough collateral in their accounts to cover their leveraged positions, which could result in them being liquidated by the exchange and losing their funds. This can create a sudden surge of forced sellers, which can lead to a spiral of liquidations - if enough positions are forced to sell, the price will drop, leading to more liquidations. The chart below shows the liquidation value of the BTC perpetual futures contract on May 19. Green "buys" represent short sellers who are forced to buy to cover their positions. Red "sells" represent longs that were forced to sell to cover. As BTC fell below $40,000, a large number of long contracts were liquidated in the $39,100-40,300 range. This led to a flurry of liquidations all the way down to $30,000, nearly $100 million in liquidations below $33,500, and more than $80 million in liquidations below $31,000. Compared with short-term liquidation, a large number of long-term liquidation indicates that there are disproportionately long contracts, which is a sign of bullish market at that time. Liquidations below $30,700 finally started to dry up as BTC prices approached $30K before bouncing back up. The spate of liquidations slashed open interest in BTC perpetual futures by more than $3 billion, bringing it to its lowest level since February. Open interest is a measure of the total number of futures contracts that are active. An increase in open interest indicates that more contracts are being opened and more money is entering the market. Open interest can also be used as a proxy for measuring leverage. If the amount of open interest is relatively high, there is a good chance that there is a high amount of leverage in the futures market, since contracts are often opened using leverage. The sharp increase in open interest from February onwards suggests that BTC's record run was fueled in part by high levels of leverage. BTC perpetual futures open interest has now reset to January levels. This type of rapid deleveraging has resulted in damaging short-term price declines. But in the end, removing leverage helps create a stronger foundation for future growth because it eliminates a large pool of would-be sellers. Over the past two weeks, the cryptocurrency market has suddenly started undergoing several seismic shifts. Government regulation appears to have hastened the prelude to the migration of BTC from China to the rest of the world. Tesla's change in attitude towards accepting BTC payments has frightened some retail investors, causing many to cut their flesh. A massive futures liquidation event created a temporary price spiral, but also cleared a large amount of outstanding leverage that was propping up the market. The situation in China is still developing and it remains to be seen what happens in the coming weeks. If there is stricter regulation, the cryptocurrency market may continue to languish. But if things aren't as bad as initially thought, the worst may be over. In any case, once the big sell-off is over, strong buyers will wait on the sidelines to take advantage of relatively low prices. Institutional investors appeared to be largely unfazed by the rout. Those who have been waiting for an opportunity to enter the market may finally decide that this is the right time, while investment titans like Ray Dalio continue to change their minds about BTC. The fundamentals of Bitcoin have not changed. And, if a big shift to more decentralization does happen, they're only going to get stronger.


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