In the digital currency market, Bitcoin has always been the focus of much attention. However, the recent collapse in the price of Bitcoin has attracted widespread attention. People are speculating about the reason for the drop in Bitcoin price? In fact, the reasons behind the collapse of Bitcoin have gradually emerged. Let us delve into the mysteries together.

 Background introduction: The rise and fall of Bitcoin

As the first widely accepted cryptocurrency, Bitcoin has attracted much attention since its inception. Its decentralization, anonymity and scarcity characteristics have attracted the attention of a large number of investors. However, Bitcoin price fluctuations have always been the norm in the market. Judging from historical data, it is not uncommon for Bitcoin prices to rise and fall sharply. But this time, the continued decline in Bitcoin prices has triggered more thinking and discussion.

 Supply and demand: fluctuations caused by market mentality

The decline in Bitcoin prices is often closely related to market sentiment. In the digital currency market, investor sentiment swings tend to amplify price fluctuations. When market sentiment is dominated by negative sentiment, investors sell Bitcoin, causing the price to fall. For example, the recent plunge in the price of Bitcoin was precisely because the spread of some negative news triggered panic among investors, thus exacerbating the price drop.

 Laws and regulations: The impact of regulatory policies on prices

The regulation of the digital currency market has always been one of the focuses of market attention. Changes in regulatory policies often have a significant impact on digital currency prices. Recently, some countries have strengthened supervision of the digital currency market and restricted the circulation and trading of Bitcoin. This has also become an important reason for the decline in Bitcoin prices. Investors' concerns about regulatory policies have led to market instability, which in turn has affected the trend of Bitcoin prices.

 Technical factors: the relationship between mining difficulty and price

The mining difficulty of Bitcoin has always been one of the important factors affecting the price. As the Bitcoin market continues to develop, the difficulty of mining continues to increase, leading to an increase in mining costs. When the price of Bitcoin falls, the cost of mining exceeds the revenue from mining, and miners choose to exit the market, causing the supply of Bitcoin to decrease and the price to fall further. This technical factor also affects Bitcoin price fluctuations to a certain extent.

 Market Heat: The Interweaving of Speculation and Bubbles

The digital currency market has always been plagued by speculation and bubbles. Investors' speculative behavior often intensifies market volatility and creates artificially high prices. When market enthusiasm reaches its peak, investors cash out and exit, causing prices to plummet. The decline in Bitcoin prices is also related to the cooling of market enthusiasm. The reduction in speculation has caused prices to return to rationality and the market bubble to burst.

 Conclusion

Behind the plummeting price of Bitcoin is the result of multiple factors such as market supply and demand, regulatory policies, technical factors and speculation. While investors pay attention to the price of Bitcoin, they should also view market fluctuations rationally and make wise investment decisions. Only with an in-depth understanding of the logic and factors behind the market can we seize investment opportunities and realize wealth appreciation. I hope every investor can overcome obstacles and win success in the digital currency market!

The four most famous international exchanges:

Binance INTL	OKX INTL	Gate.io INTL	Huobi INTL
China Line　APP DL	China Line　APP DL	China Line　APP DL	China Line　APP DL

Note: The above exchange logo is the official website registration link, and the text is the APP download link.

Although the market seemed to have stabilized during the U.S. trading session after experiencing a sharp decline yesterday evening, a new round of sharp decline this morning almost shattered the hopes of short-term bull counterattacks. As of the time of writing, Bitcoin was as low as one degree. It dropped to 4350. Although the market has rebounded slightly, the intraday decline still remains above 20%. The continuous plunge has caused Bitcoin to fall by 40% within the week. The last time a similar situation occurred can be traced back to 7 years ago. In early April 2013, Bitcoin experienced a weekly decline of more than 45%, but at that time, the price of Bitcoin was only US$100.

The avalanche in the global financial market continued overnight, and stock markets in many countries continued to plummet. The Dow Jones Industrial Average fell 10%, the largest single-day decline since Black Monday in 1987; major currency swap spreads expanded, precious metals plummeted across the board, and gold fell sharply. It plunged 80 US dollars and fell below the 1,600 integer mark; Brent crude oil once again suffered a single-day decline of up to 8%. A large amount of cheap supply from Saudi Arabia and the United Arab Emirates poured into the market, exacerbating price pressure.

At the same time, the CNN Fear and Greed Index read 2 at the beginning of the US market yesterday. This value hit a record low, indicating that the market is currently in a state of extreme fear, and the level of fear has reached the level of the 2008 financial crisis. The Chicago Board Options Exchange (CBOE) VIX panic index also surged nearly 30%.

In the context of rapid market panic, the plunge in risk assets seems "natural", but gold's sharp short-term plunge is worth pondering. As a safe-haven asset with absolute consensus, the principle of "gathering gold in troubled times" has been circulated for thousands of years. However, in this environment where panic broke out, gold did not rise all the way but suffered an obvious setback and fell back. What is the reason for the large-scale selling? And what? The problem ultimately comes down to the word "liquidity".

Liquidity risk refers to the risk of failure to complete transactions at the ideal time due to insufficient market trading volume or lack of counterparties willing to trade. Liquidity risk is generally caused by the negative impact of other risks, and in extreme cases liquidity risk can be enough to knock out large banks and cause them to go bankrupt.

In addition, liquidity risk means that the value of short-term assets is insufficient to cope with the payment of short-term liabilities or unexpected capital outflows. It can be seen that assets with better liquidity are more "calm" in responding to crises. Generally speaking, assets with better liquidity are The more resilient the asset is. Liquidity risks may occur in all markets.

When all assets collectively collapsed, the voice of "cash is king" spread again in the market. The lack of cash in the hands of investors will inevitably trigger a new round of selling demand, and traditional safe-haven assets such as gold, which have been strong before, will naturally fall under the influence of this "active selling" demand. Simply put, anything that can be sold for money may be sold off in exchange for cash, and Bitcoin’s sharp decline is partly due to this.

Chain.info
On-chain data monitoring shows that before Bitcoin’s recent plunge, an “old miner” transferred 1,000 Bitcoins to the exchange. All of these 1,000 Bitcoins were mined before October 2010 and have never been moved in the following nine years. In addition, the number of large-value transfers of more than 100 coins on the Bitcoin chain reached 1,839 yesterday, a 129% increase compared to the previous trading day.

The significant shrinkage in trading volume on major cryptocurrency trading platforms over the past month or so shows that the cryptocurrency market itself has ongoing liquidity problems, and after a concentrated run on demand erupts in a short period of time, currency prices are prone to extreme fluctuations.

In addition, the increasing use of leverage in the cryptocurrency market has further increased the risk of abnormal movements in this already unstable market. Once the market rises and falls rapidly, a large number of leveraged contract liquidations will further increase the one-way nature of the market. Momentum, and with the "joint efforts of many parties", we got this staggering market performance in the past 24 hours.

The performance of traditional financial markets in recent times has become increasingly similar to that of the last financial crisis in 2008, and more and more top investment banks have begun to "warm up" the arrival of a new round of recession. Some analysts pointed out that if the financial crisis breaks out completely, the poor external environment combined with the upcoming halving of rewards is likely to cause more than one-fifth of the miners to become "unemployed." The market's cautious attitude toward risky assets during the crisis phase will also lead to thin buying support in the cryptocurrency market, and the risk of further market declines cannot be underestimated.

However, one thing worth emphasizing is that hoarding large amounts of cash has not been a situation that market participants have been willing to face for a long time. It is foreseeable that at some point in the future, investors will inevitably use the cash on hand to start buying again. All types of assets. For everyone in the market, the key question is how long this psychological construction will take. In fact, it is how long the new round of "recession period" will last.

Maybe many years from now when we look back at this period of history, the cryptocurrency market will be able to show some unexpectedly bright performances in the first real financial crisis it has experienced since its birth, but at least at this moment , there are very few people who are willing to believe that Bitcoin can transition smoothly. Is Hodler's faith strong enough?