Bitcoin
(BTC)
dropped
7.5%
Monday
morning,
its
steepest
intraday
drop
since
mid-August.
Bitcoin
is
still
up
over
150%
this
year,
though
the
massive,
sudden
and
unexpected
“red
candle”
on
the
charts
is
a
reminder
of
the
largest
cryptocurrency’s
volatility.
This
is
an
excerpt
from
The
Node
newsletter,
a
daily
roundup
of
the
most
pivotal
crypto
news
on
CoinDesk
and
beyond.
You
can
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here.
Last
week
it
seemed
like
very
little
could
stand
in
bitcoin’s
way,
with
many
of
the
industry’s
long-standing
issues
seemingly
resolved.
So
why
did
bitcoin
drop
today?
It
might
be
better
to
start
at
why
it
was
climbing
in
the
first
place.
For
instance,
Binance,
the
largest
and
most
controversial
crypto
exchange,
agreed
to
pay
a
$4.3
billion
fine
to
U.S
authorities
to
keep
operating,
a
“historic”
penalty
it
seems
likely
to
survive.
This
settlement
also
cast
the
U.S.
Securities
and
Exchange
Commission’s
(SEC)
legal
imbroglio
with
U.S.-based
exchanges
Coinbase
and
Kraken
in
a
better
light.
The
regulatory
front
in
the
U.S.,
generally
speaking,
also
seems
to
be
easing.
If
there
isn’t
yet
“regulatory
clarity,”
(that
old
industry
adage),
proposals
have
been
made
by
high-ranking
legislators
giving
a
good
indication
of
what’s
likely
to
come.
There
are
also
predictable
events
like
Bitcoin’s
scheduled
“halving”
next
year,
when
the
network
literally
cuts
the
amount
of
BTC
that
enters
into
circulation
in
half,
and
the
potential
the
SEC
approves
a
bitcoin
ETF
application.
Market
watchers
have
been
talking
up
both
events,
and
the
ETF
could
be
said
to
be
the
prime
driver
of
bitcoin’s
price
recently.
Then
there
are
the
macroeconomic
forecasts.
Bitcoin,
which
is
sometimes
called
“digital
gold”
because
it
theoretically
could
act
like
a
similar
store-of-value,
has
rallied
alongside
its
physical
metallic
counterpart.
Gold
futures
recently
settled
at
a
record
end-of-day
high,
in
part
driven
by
inflation
concerns.
Interest
rates,
managed
by
the
Federal
Reserve,
are
at
their
highest
level
yet
in
the
21st
century,
as
the
U.S.
central
bank
works
to
quell
inflation
and
cool
an
overheated
economy.
Many
experts
think
the
Fed’s
work
will
soon
be
done,
with
some
saying
it
may
even
retrace
ground
and
lower
interest
rates
in
the
first
half
of
next
year.
Lowered
interest
rates
are
good
for
bitcoin
in
the
same
way
it’s
good
for
economic
activity,
it
“makes
money
cheaper”
by
making
it
cheaper
to
borrow,
which
means
there
is
more
money
around,
period.
Then,
because
lower
interest
rates
makes
safer
investments
like
government
bonds
less
attractive,
by
lowering
the
expected
return
on
investment,
that
capital
then
has
a
way
of
working
its
way
down
the
risk
curve,
towards
asset
classes
like
crypto.
I
don’t
really
know
what
explains
today’s
“flash
crash,”
which
began
with
a
market
correction
on
Sunday
night.
Crypto-related
stocks
like
MARA
and
RIOT
dropped
double
digits
today
even
as
tech-heavy
equities
exchange
Nasdaq
is
on
track
to
gain
on
the
day.
Many,
like
VDX
research
lead
Greta
Yuan,
looked
to
macro
forces.
On
Friday,
there
was
a
stronger-than-expected
jobs
report
and
the
Wall
Street
Journal’s
“Fed
Whisperer”
Nick
Timiraos
forecasts
that
the
Fed
itself
aims
to
cut
rates
in
2024.
The
“minor
adjustment”
could
be
explained
by
“better-than-expected
nonfarm
payroll
and
lower
unemployment,”
she
said.
Meanwhile,
Lucy
Hu,
a
Metalpha
senior
analyst,
told
CoinDesk
last
night
it
could
be
part
of
a
“rational
process
of
profit-taking,”
meaning
that
traders
essentially
made
as
much
as
they
wanted
and
decided
to
cash
out.
CoinDesk’s
market
watcher
Omkar
Godbole
called
funding
rates
in
crypto
derivatives
“overheated.”
While
the
amount
of
leverage
in
crypto
derivatives
markets
may
not
explain
the
first
mover
problem
of
knowing
what,
if
anything,
caused
a
market
correction,
it
certainly
does
help
explain
how
an
asset
could
drop
so
far
so
quickly.
Godbole
also
used
phrases
like
“excess
bullish
leverage”
and
“overcrowding
of
long
positions.”
When
traders
are
overleveraged,
they’re
essentially
trading
borrowed
money.
That
means
that
they’re
helping
to
inflate
asset
prices
with
capital
that
doesn’t
really
exist
and
also
that
if
prices
drop
they
can
be
wiped
out
(aka
liquidated)
with
a
far
bigger
impact
on
the
wider
market.
Leverage
is
great
until
it
isn’t.
What
this
also
means
is,
for
better
or
worse,
the
amount
of
leverage
has
also
been
reset
to
something
healthier.
And
let
it
be
a
lesson
to
you,
dear
reader,
that
in
crypto,
especially
when
everything
seems
to
be
working
in
your
favor,
that
prices
can
swing
on
a
hiccup.
So
be
sane,
and
recognize
that
volatility
cuts
both
ways…
