Bitcoin is still below the $36,000 mark this morning. The results of what is happening with the cryptocurrency leave much to be desired. Specifically, BTC is now 47.9 percent below its all-time high, and it has slipped 16.8 percent over the past month.

Here is a four-hour chart of the BTC exchange rate to illustrate.

A four-hour chart of the BTC exchange rate

Why is Bitcoin falling?

After falling to a 10-week low along with US stocks on May 5, Bitcoin bounced back to the line around which it traded the most in February this year. The fall in both cryptocurrencies and stocks, which followed an initial rebound a day earlier on the back of an expected increase in the US Federal Reserve’s base rate, was more severe than traders had expected.

Liquidation volumes of margin positions in Bitcoin trading

The S&P 500 index ended Friday’s trading session down 3.5 per cent and the Nasdaq 100 index was down 5 per cent. In addition to stocks, US 10-year treasury bond futures fell 1 per cent. According to Cointelegraph, all of these events on the same day is a pretty rare combination that has caused some traders to think or even panic.

Sundial Capital Research founder Jason Gepfert noted that such a chain of events has only happened twice in the last quarter century: during the 2008 global financial crisis and the COVID-19 pandemic in March 2020. Here’s his rejoinder from Twitter.

There have only been two days in the last 25 years when the S&P500 index futures fell 3 per cent and the 10-year US Treasury bond futures sank 1 per cent. This happened on 9 October 2008 and 18 March 2020. Some are having a real implosion and this is a forced liquidation.


In other words, the expert notes the rarity of the event and in addition makes it clear that the market downturn has been exacerbated by position liquidations, i.e. forced closures. This means that some traders' positions were sold by the exchanges to avoid losses. And because in this case we are talking about sales, it intensified the effect of what was happening. Recall that this is usually referred to as a liquidation cascade.

Well, traditional markets traditionally affect cryptocurrencies because of their high correlation. Roughly speaking, when conditions in global markets fold negatively, crypto investors also choose to close positions and sell assets to avoid losing more. And this quite predictably causes further collapse.

In other words, it is not Bitcoin, but rather the US economy that is having a problematic day. As a consequence, the cryptocurrency price also went in search of a bottom. In general, a strong correlation between BTC price dynamics and stock market has long been confirmed by many studies of cryptoanalysts, so the situation seems logical. Here’s how Van de Poppe commented on it.

To me, this smells like a surrender, or at least serious signals to sell the asset.

Bitcoin chart

He noted that the drop also led to a candle with the highest trading volume on the scale of the 4-hour chart of the BTC/USD trading pair since early December. Transaction volume is one of the key aspects that confirms the “capitulation” of market players. It is quite possible that after such a sharp collapse, Bitcoin’s value will slowly rise, as there are not many willing to sell BTC at its current price right now.

It is important to understand that this assumption is logical, but it does not necessarily have to come true. It is impossible to predict what will happen in the markets, which means that risk control tools should not be forgotten either.

However, among those willing to buy cryptocurrencies is Luna Foundation Guard (LFG), which is associated with the Terra Luna cryptoproject ecosystem. This week it received $1.5 billion in funding for its bitcoin accumulation program, which means it has seriously increased its own volume of coins. Terraform Labs itself, which is the developer of Terra Luna, announced a massive BTC accumulation strategy about a month ago to secure its own Terra USD (UST) stablecoin.

The new funding round allowed the foundation to acquire another 37,863 BTC through an OTC swap with broker Genesis Trading and an additional purchase from leading cryptocurrency venture capital firm Three Arrows Capital. The more specific scheme of the deal is an OTC swap or exchange with Genesis for a billion dollars in UST and a $500 million purchase of BTC from Three Arrows Capital.

By today, LFG has already accumulated about $3.5 billion in Bitcoin. The company is now one of the top ten institutional investors that hold BTC on its balance sheet. Earlier, Terraform Labs chief Do Kwon said he was planning a long-term investment in Bitcoin with periodic coin purchases. So the crypto market will get support from buyers for the foreseeable future.


We believe that so far the situation of global financial markets is far from ideal. Economies are now facing inflation, in addition the world is on the verge of possible food problems, which will not be good for food prices either. Be that as it may, the top cryptocurrencies are still characterised by limited maximum supply and sometimes deflationary, as well as independence from governments and bureaucrats. Therefore, it is possible that these features will show themselves in the future.

What do you think about it? Share your opinion in our Millionaire Crypto Chat. There we discuss other important developments in the blockchain world.