A $450 million Bitcoin report?

The long-awaited correction in the crypto market has finally arrived.

Since the end of last year, the anticipation of the approval of Bitcoin spot ETFs has driven the crypto market to continuously rise. The dazzling narratives surrounding Bitcoin ecosystem inscriptions, Solana ecosystem memes, and so on have also surged, as the market seems to climb upward without hesitation, leaving those hoping to "buy the dip" far behind.

Entering January, the expectations for the "approval of Bitcoin spot ETFs on January 10" have become clearer and stronger. However, at the same time, profit-taking investors from the past few months have also prepared to "sell the news." On the first trading day after the New Year in 2024, market enthusiasm peaked as Bitcoin powerfully broke through $45,000. But just one day later, the industry suddenly faced a long-awaited "bull market correction," with Bitcoin's price rapidly dropping below $42,000, and liquidations across the network increasing to $451 million in just one hour, leaving many investors who had "just fully invested" in tears.

Looking back at the previous crypto bull market before the 312 event and during the bull market period of 519, the crypto industry has not been short of significant declines during active market periods. The current price fluctuations in the market further prove that the crypto market is on the path to a new bull market.

Why the Drop?

The essence of the crypto market is high volatility, akin to a roller coaster filled with surprises and fears; you never know what will happen next. The widely acknowledged reasons for this recent crash include the ongoing expectation of a market correction, the beginning of a pullback in the U.S. stock market, and a report from Matrixport, which is another factor worth noting that may have contributed to the price plunge.

Market Profit-Taking Correction

The volatility of the crypto market stems not only from its emerging and immature characteristics but also from various factors such as regulation, technological development, and the psychology of market participants. From the perspective of retail investors, there seems to be a common expectation in the current market: that the crypto market will experience a certain correction.

Especially in the more volatile crypto market, history tells us that prices cannot continue to rise in one direction indefinitely. There will always be some correction periods, which are part of a healthy market adjustment, giving those who missed the opportunity a chance to enter.

During a rising market, retail investors hope to catch the upward trend while also anticipating a correction, much like waiting for a big sale on Black Friday. When the market is good, everyone wants to jump on the bandwagon, but they secretly wish it would slow down a bit to give them time to get on board. Of course, no one wants it to slow down too much.

This is the daily life of retail investors, constantly oscillating between hope and disappointment, waiting for that perfect buying opportunity. The profits taken by investors provide such an opportunity for retail investors. Especially after a period of rising prices, many investors choose to lock in their profits.

In March, the cost to mint one ORDI was between $2 and $3, with one unit including 1,000 coins. Calculating at a price of $50 per ORDI, one unit would be worth $50,000. Ten months later, if not sold, this represents a 20,000-fold increase in investment.

Not only ORDI, but also the meme token SILLY on the Solana chain has seen a 20,000-fold increase. Recently, SILLY surged past $0.16, reaching an all-time high. The top ten addresses holding SILLY (excluding CEX addresses) own 18.5% of the total supply. Among these addresses, the highest unrealized profit is 27,000 times, while the lowest is 0.7 times. The average unrealized profit is 30 times, with most having bought in very early and held until now.

Money flows from one pocket to another, and behind these 20,000-fold increases and profit-taking is the act of selling cryptocurrencies to lock in profits. This leads to an increase in supply in the market. As more and more investors choose to sell, the market becomes oversupplied, and prices naturally fall.

Additionally, from the perspective of implied volatility in options, this crash was not without any warning signs.

The options market is often seen as a "leading" indicator for the spot market because it reflects traders' expectations of future price movements. An increase in CALL options indicates a generally bullish market, while an increase in PUT options reflects bearish sentiment.

Currently, the Bitcoin market has seen significant growth in CALL (bullish) options. Therefore, before the ETF news is finalized, from the perspective of implied volatility in options, retail investors betting on PUT (bearish) options may find a better risk-reward ratio, making it increasingly likely that investors will purchase Bitcoin PUT options at this time. This bearish sentiment may spread to a broader market, influencing other investors' decisions. When more people expect prices to fall, they may choose to sell their held Bitcoin, thereby exerting downward pressure on actual prices.

Collective market expectations can sometimes trigger a self-fulfilling prophecy. In other words, if enough investors expect prices to fall and take corresponding selling actions, their collective behavior may ultimately drive prices down. This phenomenon is particularly evident in highly speculative and emotional markets.

Poor Start for U.S. Stocks in the New Year

The movements in the crypto market seem to often follow those of U.S. stocks. It is evident that the U.S. stock market has had a poor start in 2024, with the upward momentum from the end of last year stalling, and investors reducing their bets on the extent of interest rate cuts.

Today, the once-dominant "Magnificent Seven" in the U.S. stock market saw declines, with the Nasdaq index dropping by 1.6%. Analysts at Barclays have warned that the growth rate of the service sector, which has been supporting the market, is unlikely to exceed 10% this year. Apple's stock price fell by 3.58% today, hitting a new low since November 13.

Chip stocks also experienced declines, with the Philadelphia Semiconductor Index dropping by 3.65%. ASML's stock fell by 5.28%, Nvidia dropped by 2.73%, and TSMC's ADR declined by 2.38%.

Not only tech and chip stocks, but blockchain-related U.S. stocks also showed a widespread decline.

At the turn of 2023 and 2024, blockchain-related U.S. stocks experienced a rollercoaster ride in just a few days. On December 30, blockchain-related U.S. stocks generally fell, with Bitdeer down 22%, Marathon down 12.3%, and Coinbase down 8.05%. Although on January 2, blockchain concept stocks in the U.S. briefly surged before the market opened, with Canaan Technology rising 19%, Marathon Digital up 16%, Riot up nearly 12%, and Coinbase up nearly 7%, Coinbase was unable to recover its losses after the market opened.

As mainstream cryptocurrencies declined, crypto-related stocks continued to fall in pre-market trading. Coinbase dropped over 6%, Marathon Digital and CleanSpark fell over 10%, Riot Platforms declined nearly 9%, and Cipher Mining and MicroStrategy dropped over 6%. Over the past five days, Coinbase has already lost 15%.

Matrixport Report Seen as Bearish Signal

From the news perspective, the Matrixport report is another factor worth noting that may have contributed to the price plunge.

This afternoon, Matrixport released a report predicting that the SEC is expected to reject all proposals in January due to failure to meet key requirements. If the SEC denies approval, the market could see large-scale liquidation activities, with Bitcoin prices potentially dropping rapidly by 20%.

Matrixport believes that despite frequent discussions between ETF applicants and SEC staff and resubmissions of applications, these applications have not met the key requirements for SEC approval. The five-member voting committee of the SEC is primarily composed of Democrats, and Chairman Gary Gensler has reservations about accepting cryptocurrencies in the U.S., politically lacking reasons to approve Bitcoin spot ETFs, as this would legitimize Bitcoin as an alternative store of value.

The report states that since September 2023, expectations for ETF approval have led to at least $14 billion in additional short and leveraged funds entering the cryptocurrency market. Of this, at least $10 billion in capital flows may be related to expectations of ETF approval. If the SEC denies approval, it could trigger a chain liquidation, with an estimated additional $5.1 billion in permanent long Bitcoin futures likely to be unwound, leading to a rapid drop in Bitcoin prices by 20%, returning to the range of $36,000 to $38,000.

Matrixport's report also suggests that if market participants do not receive any approval news before January 5, 2024, traders can hedge their long exposure by purchasing January-end $40,000 strike PUT options or directly shorting Bitcoin through options. Although the SEC may reject the ETF, Matrixport still predicts that Bitcoin prices will be higher at the end of 2024 than at the beginning of the year ($42,000), as election years in the U.S. and Bitcoin mining years typically perform positively.

From the content of the report, it is clear that Matrixport is merely making its own prediction regarding the approval of Bitcoin spot ETFs in January. They believe that SEC Chairman Gary Gensler will not choose to embrace cryptocurrencies quickly for political reasons. Overall, the report resembles a market trading report from Matrixport and cannot serve as a basis for judging whether Bitcoin spot ETFs will be approved.

Moreover, just yesterday, Matrixport also released a report stating that due to the impending approval of Bitcoin spot ETFs, institutional purchases, supply shortages, and historical trends, Bitcoin is expected to soar to $50,000 in January and may enter altcoin season.

Mainstream and Popular Token Declines

As of the time of writing, the total market capitalization of cryptocurrencies is $1,762,700,031,192, with a 24-hour decline of 6.5%.

BTC

Bitcoin fell below $41,000 but later rebounded to $42,866, with the 24-hour decline narrowing to 6.87%. Previously, Bitcoin had broken through $44,000 on December 20.

ETH

Ethereum briefly fell below $2,150 but later rebounded to $2,229, with a 24-hour decline of 3.44%. Previously, Ethereum briefly touched $2,400 on January 2.

SOL

SOL briefly fell below $90 but has now rebounded to $100, with the 24-hour decline narrowing to 12.8%. Previously, SOL had broken through $110 on January 2, and its total market capitalization (approximately $50.1 billion) has once again surpassed BNB (approximately $49.1 billion), temporarily ranking fourth in the cryptocurrency market capitalization list.

SOL is undoubtedly one of the standout assets in this round of rising markets. After the FTX incident, the reborn Solana began to gain momentum in April this year. In this round of market activity, the Solana ecosystem has created three rounds of market heat through "airdrop season," DePIN narratives, and "meme season," with most investors in its ecosystem making substantial profits. In today's correction, SOL seems to be facing significant profit-taking pressure, having once dropped over 20%.

ORDI

ORDI briefly fell below $65 but has now rebounded above $77, with the 24-hour decline narrowing to 6.25%. Previously, ORDI briefly broke through $87 on January 2, reaching an all-time high.

Inscriptions are undoubtedly one of the hottest crypto narratives recently, and as the leader in inscriptions, Ordinals and its token $ORDI have naturally become a hot topic in the entire cryptocurrency industry. After Bitcoin Core developers publicly announced a "fix" for the inscription vulnerability, ORDI experienced a brief drop, but amid the enthusiasm for the inscription narrative, ORDI quickly rebounded, even breaking new highs multiple times.

ARB

ARB briefly dropped to $1.4 but has now rebounded to $1.85, with a 24-hour increase of 8.39%. Previously, ARB had briefly broken through $1.94, reaching an all-time high.

On July 7, 2023, the Arbitrum community passed the AIP-1.1 proposal, planning to unlock the remaining 700 million ARB over four years. The massive unlock led to a brief increase in ARB prices, but subsequently, prices fell continuously, starting to improve only after dropping to a low of $0.74 on September 11. Influenced by expectations of the Cancun upgrade and rising Ethereum prices, ARB rose 60% within a month. Additionally, during this correction, ARB quickly rebounded near its peak.

METIS

METIS briefly dropped to $70 but has now rebounded to $85. On January 2, METIS briefly touched $98, reaching a recent high.

The price of Metis and its TVL increase are among the most notable gains in the recent crypto market. Metis is expected to launch a "sequencer pool" in January, making it the first decentralized sequencer rollup, which brings new active factors to the entire L2 market. Moreover, its recently launched ecosystem fund will provide foundational support for the development of Metis ecosystem projects. Recently, infrastructure tokens within the Metis ecosystem, such as HERMES and NETT, have also seen significant gains.

AVAX

AVAX briefly dropped to $30 but has now rebounded to $37. In December 2023, AVAX prices reached $42.

Like Solana, Avalanche successfully broke out of the bear market during the market recovery in 2023. With the resurgence of on-chain data due to inscriptions and meme trading, Avalanche's officials have also actively embraced the new world. At the end of December 2023, according to an official announcement, the Avalanche Foundation announced plans to purchase meme tokens on the Avalanche chain through the "Culture Catalyst" special program. Following this news, popular meme tokens such as COQ and GEC also experienced another round of gains.

SEI

SEI briefly dropped below $0.6 but then briefly broke through $0.82, reaching an all-time high. As of the time of writing, SEI's price is $0.78.

SEI has become one of the most prominent strong tokens in this correction. With narratives such as parallel EVM and Sei V2, Sei has shown explosive growth recently. Although the infrastructure is still in its early stages, projects within the Sei ecosystem, such as the SEIYAN meme coin and Seiyans NFT, have generated considerable market interest.