August 14-20: 3 Reasons For the Crypto Crash

21 Aug 2023 by Rory Kejzerko 3 min read

It’s safe to say that the summer blues have most certainly made their way into the cryptosphere, as last week marked the worst 7-day period for the space since November 2022.

As is the case for any system of global economics (or should I say, tokenomics), there are countless reasons as to why this has happened (in fact, if you were to give attention to them all, you’d probably be sat reading all day).

So, with the plethora of reasons at our disposal, we’ve whittled down our explanation into three core reasons… Bitcoin, Binance, and of course, China.

Bitcoin Liquidity Carnage

Bitcoin ($BTC) price action suggests that price slumps began on Tuesday 15th August at around 11AM BST.

First to be considered for initiating this is the lawsuit between the SEC and digital assets management group Greyscale. Here, Greyscale is in the process of suing the SEC as part of its ploy to convert its Grayscale Bitcoin Trust (GBTC) into a spot Bitcoin ETF.

Although a ruling for the case isn’t expected until later this year, a rumour of a ‘favourable’ decision for crypto being announced at 11AM began circulating on X. However, come said time, no announcement was made, which could’ve then catalysed a market dip through BTC traders- who’d previously taken on extra leverage- liquidating their assets.

(https://coinmarketcap.com/currencies/bitcoin/#Analytics)

In adding more feelings of FUD, Tuesday morning also saw crypto’s oldest market maker GSR announce that it’s scaling down its operations in the U.S. Simultaneously, the firm also began selling altcoins that it had previously made markets for.

In general, the circumstances surrounding GSR have been seen as rather bearish for the crypto space, however like anything, it’s hard to pinpoint the actual impact they’ve made on the market.

Two days later, Elon Musk’s SpaceX then made even bigger headlines by writing-off its Bitcoin holdings, which further prompted over 176,000 traders to liquidate a little over $1 billion worth of contracts (i.e. long traders selling at a loss to avoid even bigger losses…a vicious cycle).

Given that Bitcoin controls almost 50% of the total crypto market, such turmoil was destined to cause mass effects across the entire DeFi world.

As of the time of writing (Monday 21st), Bitcoin sits at a price of around $26,000, which is around a 12% fall from its value of $29,400 the same time last week (per CoinMarketCap).

Binance FUD

The world’s largest crypto exchange Binance and its unfavourable relationship with US authorities could be another reason for last week’s FUD.

Here, bearish rumours between the two institutions continued to pile up, this time regarding US authorities asking Binance to give up some of its core operations as part of a settlement, as well as disclose an unnecessary amount of information. In response to such onslaught, the exchange has filed for a protection order against the SEC’s ‘fishing expedition’.

Intuitively, such speculation has prompted several banking partners to cut ties with Binance- as ‘Checkout.com’ did last week. In turn, Binance has started considering legal action due to Checkout.com’s involvement in its crypto-to-fiat payment rail ‘Binance Connect’.

Collectively, all of such trials and tribulations have put downward pressure on Binance’s native $BNB token over the past week (around 13% to $209.40 per CoinGecko), as well as add to the growing concerns surrounding the safety and legitimacy of centralised crypto exchanges.

China…

After previously enforcing strict capital controls over crypto, the new governor of China’s Central Bank Pan Gongsheng is back again to clamp down on crypto activity… this time due to the ongoing collapse of the Chinese Yuan.

Although no action had been made as of yet, recent geopolitical rumours suggest that the world’s second largest economy is now massively incentivised to prevent ‘capital flight’ by adding even more regulations to the crypto space.

For context, 40% of Chinese property developers are thought to be going bankrupt, including Country Garden- once the country’s largest property developer- as well as the Evergrande Group in the US. Worrying figures have also been observed in the retail and industrial sectors, which has further led to the government halting its publishing of data regarding its record high youth unemployment (at 20%+).

With a weak currency and deflationary economy at hand, China’s lack of liquidity is understandably of detriment to the crypto space as of now. Making such matters worse is its rigidness in policy, as if it were to stimulate its economy and crypto markets simultaneously, this would collapse the Yuan against the US dollar… i.e. something in which the Chinese Communist Party quite-likely wants to avoid.

On the grand scale of things, the market cap of crypto sits at $1.09 trillion, which is a fall from its $1.17 trillion figure from this time last week (per CoinGecko). Although bearish in isolation, such slump comes amidst a global fiat-based recession, which, in of itself, is also a major contributing factor of the crypto space.

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