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August Bitcoin Crash Analysis

August Bitcoin Crash Analysis

Bitcoin’s August price was due to many factors. This post looks at a few likely culprits.

Being a Bitcoin (BTC) true believer is not for the faint of heart. Not only does BTC volatility spike at the extreme highs and lows of the general market, but it recently suffered a freakish crash, seemingly out of nowhere.

On August 18, the BTC price dove over 8% in 10 minutes. In crypto markets, where BTC goes, the rest often follow; therefore, the crypto market dipped as well. In the following days, the crypto financial press offered some possible reasons. Let’s take a look at some likely culprits of this crash.

SpaceX Bitcoin Sale

Given the sudden steep drop, it makes sense to suspect the cause as an event just before Bitcoin’s dive. Following that logic, some blamed the crash on an Aug. 17th Wall Street Journal report that SpaceX had offloaded some or all of its $373 million in Bitcoin holdings in 2021-2022.

SpaceX founder Elon Musk is an outspoken crypto investor with a large following. His tweets have influenced the crypto markets in the past, so the idea that he’s inspired other BTC investors to act with him is entirely possible.

Crypto Whales Causing a Tidal Wave

Another theory is that actions by Bitcoin whales triggered the crash. Bitcoin whales are entities or individuals that hold large amounts of Bitcoin. Many whales are anonymous. Some high-profile whales include the Winklevoss twins and venture capitalist Tim Draper.

Crypto Whales Causing a Tidal Wave
Source: River Financial 2023

While Bitcoin whales’ identities are often unknown, crypto watchers and analysts track their wallet addresses. Because they hold an outsized proportion of BTC, their actions can cause a ripple effect in the market.

CoinTelegraph reported that one analyst speculates that the move was an intentional large whale sale to trigger a drop in ETH. Why?

Bloomberg reported on August 17 that the SEC is signaling approval of an Ethereum Futures ETF. ETH prices rose on the news. Since drops in BTC tend to affect ETH, a whale may have offloaded Bitcoin to trigger a dip in the price of ETH, providing a window of opportunity for purchasing ETH at a lower rate before official SEC approval.

As the regulatory environment moves toward more certainty, whales may anticipate price increases in Bitcoin and crypto on the heels of favorable regulatory announcements.

Rising Bond Yields

August 17 was a big day in finance for more mundane reasons, too. The key U.S. Treasury yield rose to its highest point in nearly two years, peaking at 2.5%. Elevated yields tend to mirror expectations of future interest rate hikes and inflation. Binance says this trend signifies that investors are reallocating their investments from riskier options like cryptocurrencies to more stable choices like bonds.

Elevated bond yields also result in heightened borrowing costs for both businesses and consumers, which could curtail economic expansion and reduce the appetite for cryptocurrencies.

Regulatory Uncertainty

Some analysts feel that regulatory uncertainty could have influenced the Bitcoin crash. However, there has been a lot of favorable momentum in recent months around crypto regulation, and regulatory uncertainty has been a part of the crypto landscape for years. It isn’t likely that regulatory uncertainty was a significant factor in this particular crash.

Bitcoin Halving

Another factor that might have impacted market sentiment is the imminent Bitcoin halving event scheduled for May 2024. Bitcoin halving is an event programmed into the Bitcoin protocol that creates scarcity by halving the amount of new bitcoins issued every four years.

During this event, miners’ reward for validating transactions and adding them to the blockchain will be half what it was. Bitcoin designed the halving event to control the issuance of new bitcoins and ultimately create a capped supply of 21 million bitcoins. By halving the block reward every four years, the rate of new bitcoin creation slows down over time.

From an investors’ standpoint, analysts speculate that in August, whales attempted to cause a price dip in anticipation of prices rising after the halving.

Bitcoin Halving
Source: CoinLedger

Historically, Bitcoin Halving has preceded a bull market. The 2024 halving event is not exactly breaking news, so it’s possible but not likely that the event could have triggered the August dip.

Chinese Yuan and Bitcoin Risk

The weakness of the Chinese yuan may represent a macro risk to Bitcoin. The yuan is trading at its weakest level since 2007, triggering fears of devaluation. What does this have to do with Bitcoin?

Markus Thielen from Matrixport pointed out that the last time China devalued the Yuan in August 2015, Bitcoin prices declined by 23%. China’s CBDC digital Yuan is also struggling. As the biggest central bank digital currency (CBDC) experiment in motion today and a competitor to Bitcoin, the Yuan’s performance may have been a factor in the August crash, but it’s not likely to be the primary reason.

Moving Ahead

Since the crash, Bitcoin has recovered some value, jumping to $27,721 on favorable news from court rulings in the ongoing wrestling match between the SEC and crypto firms. With steady progress on regulatory clarity, Bitcoin and cryptocurrency are closing in on finally going mainstream.

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This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.

Kala Philo