The price of Bitcoin BTC$15,753 sank to a new yearly low of $15,654 on Nov. 21.
A market-wide decline was precipitated by investors running for the hills in fear that the FTX-induced contagion would spread to all corners of the crypto sector.
On the back of investor concerns about rising interest rates, stocks closed the day in the red, with the tech-heavy Nasdaq down 1% and the S&P 500 down 0.42%.
Over $100 million in leverage loans were liquidated on November 20 and November 21 as investors fear an accelerated sell-off if Digital Currency Group (DCG) and BlockFi fail to secure funding and are forced to declare bankruptcy.
BTC open interest by strike price. Coinglass
According to some analysts, Bitcoin's price is likely to decline below $14,000, which could lead to the liquidation of another 10,000 BTC.
Let us investigate the main reasons why the Bitcoin price is currently down.
Historical "peak realized losses" are cited in on-chain data
The price of Bitcoin is reacting to the stress placed on the market by the widespread FTX contagion, reaching an all-time low after a period when many believed a bear market bottom had been reached.
During the week of Nov. 12, Glassnode reported $1.45 billion in realized losses, ranking them as the fourth largest in history.
“A comparably small $83M in realized profits occurred, suggesting that the vast majority of spent volume at present is sourced from investors from the current cycle.”
Realized losses for Bitcoin. Source: Glassnode
Bitcoin's price is affected by rising interest rates in the US and abroad.
Inflation in the United States increased by 0.6% in September over the previous month, according to the Consumer Price Index Report.
The Consumer Price Index reported 8.2% growth in September, compared to the same month a year ago, slightly higher than the 8.1% predicted by experts.
As a result of the upcoming CPI reporting event on November 10, bitcoin experienced a volatile 12% decline in 24 hours, hitting a record low for 2022.
Cryptocurrency investors fear the contagion will spread to all corners of the industry
As one of the largest holders of Bitcoin, DCG's Grayscale Bitcoin Trust holds 633,000 BTC. The recent volatility in the FTX market has left an apparent $1 billion hole in the balance sheet of another DCG subsidiary, Genesis Trading. Due to Genesis' difficulties securing funding, and its indication that it may have no other choice but to file for bankruptcy, investors believe that another black swan event may be imminent.
Grayscale BTC holdings. Source: Coinglass
According to the Wall Street Journal, BlockFi is another crypto-focused company facing imminent bankruptcy if it cannot find a purchaser. This is further proof that fallout from FTX may continue to ripple through large companies with exposure.
SoFi is also under pressure from regulators. The Senate Bank Committee warned the company in letters on Nov. 21 to conform to banking standards. A response by SoFi is demanded by Dec. 8.
Could Bitcoin's price reverse course?
Institutional investors' long-term outlook has not changed as a result of short-term uncertainties in the crypto market. In a poll commissioned by BNY Mellon CEO Robin Vince, 91% of institutional investors expressed interest in investing in tokenized assets in the future.
About 40% of them already own cryptocurrency, and approximately 75% are actively investing in digital assets or considering doing so.
On-chain and derivatives data indicate that worries are high after the FTX meltdown and the large divestment from Bitcoin.
Market participants still expect Bitcoin's price to rise in the long run, especially since more banks and financial institutions are turning to digital cash for settlement purposes.