Reference News Network, October 22 report: The "Nikkei Shimbun" published an article titled "Cryptocurrency Market Value Shrinks Exposing Its Structural Vulnerability" on October 21. The author is Takamatsu Koichiro, and the content is translated as follows:

Funds are flowing out of the cryptocurrency market, with the total market value shrinking by about 90 trillion yen (approximately 60 billion US dollars) within two weeks. Bitcoin's price has fallen nearly 20% from its peak in early October. Although it has long been considered a safe haven alongside gold, the gap between the two remains significant. The sharp decline in stablecoins, which were expected to provide "price stability," exposed the vulnerability of the market structure and the risks of speculative orientation.

The selling spree is spreading to other cryptocurrencies beyond Bitcoin. Data from cryptocurrency market valuation websites show that Ethereum's price has fallen more than 10% from its recent high in early October. The total market value of cryptocurrencies was 4 trillion US dollars in early October, but has now dropped to 3.4 trillion US dollars.

The buying momentum up to early October was mainly driven by the growth of "devaluation trades." Influenced by global fiscal expansion, high inflation, and concerns about currency depreciation, investors have shifted funds to precious metals such as gold and platinum, while also pouring into cryptocurrencies, which are seen as having the same value preservation function as gold, because cryptocurrencies are also known as "digital gold."

The catalyst for the reversal of capital flow is considered to be the renewed escalation of U.S.-China conflicts. After U.S. President Trump announced his intention to impose a 100% tariff on China on the 10th, Bitcoin's price plummeted from 120,000 dollars to around 100,000 dollars. During this period, gold prices continued to set new highs, while Bitcoin seemed to be excluded from the "devaluation trade." The market once again recognized its structural vulnerability.

Let's first look at the supply and demand relationship. Hirokawa Tomoya, a market analyst at Bitbank Exchange, said that during the Bitcoin rise, "investors were enthusiastic about leveraged credit trading." Investors participating in credit trading could achieve multiple times the amount of transactions by depositing cash or stablecoins pegged to fiat currencies as margin.

The Bitcoin crash led to many investors being unable to meet additional margin requirements, forcing them to liquidate their positions. According to data analysis website CoinGlass, the recent volatility caused 1.62 million investors to be forcibly liquidated, with a total liquidation amount of 19.1 billion dollars. This scale exceeded previous "shocks," such as the collapse of the cryptocurrency exchange FTX and the pandemic.

In this crash, some stablecoins experienced "depegging," meaning their prices deviated from the dollar. The stablecoin USDe, traded on the world's largest cryptocurrency exchange Binance, became the center of the event. Although its price is usually maintained at 1 USDe = 1 dollar, it briefly depegged to 0.65 dollars that day.

The depegging caused a decrease in the value of the margin, forcing many investors to sell or liquidate their holdings of USDe. It is expected that the price of this stablecoin will remain stable, but its unexpected drop caused a sharp increase in forced liquidations, which also accelerated the decline in Bitcoin's price. For this reason, Binance has compensated affected customers with 300 million dollars.

The cause of the depegging is still unclear. XBank analyst Nishiyama Yoshihisa speculated: "It is possible that someone sold a large amount of USDe targeting Binance's system, because Binance's system sets the price of USDe based solely on its own transaction data." If the design of stablecoins pegged to fiat currencies is questioned, investors may temporarily be unable to use them as margin. As a result, the scale of credit trading shrunk, and Bitcoin's price faced further pressure.

Additionally, some views suggesting that big buyers are manipulating the market are causing concerns among market participants. Transaction history records stored on the blockchain show that one investor established a large short position before Trump announced his tariff policy on China, likely profiting from the sudden drop.

Given the timing of this short sale was too precise, some baseless speculations circulated on social media that the transaction was carried out by someone who knew Trump's intentions in advance. This investor is now establishing another short position. According to Murai Toshimitsu, general manager of SBI VC Trade, the "shadow of insider trading" looms over the market.

This is not the first time confidence in the cryptocurrency market has been shaken. In 2022, the price association of the TerraUSD stablecoin with the dollar suddenly declined, causing a sudden outflow of funds from the entire cryptocurrency market. Combined with factors such as the bankruptcy of FTX, it took Bitcoin about one and a half years to recover to the level before this crash.

The price of USDe, which had previously experienced depegging, has already stabilized. Most opinions believe that this time will not be as severe as the "Terra shock" of 2022. However, the dangers of speculative trading and the fragility of the market structure have once again been highlighted, and the recovery of investor confidence will take time. Murai predicts: "Bitcoin's price will continue to hover around 110,000 dollars." (Translated by Liu Lin)

Original article: https://www.toutiao.com/article/7563963301677154870/

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