There have been two bitcoin dumps over the past half year. For the first time, on the night of September 25, 2019, bitcoin dumped by as much as 20% within 24 hours.

The second time is on March 12, 2020, bitcoin’s 24-hour decline reached 40%. The dump of other small and medium-sized cryptocurrencies is about 60% – 70%. Basically, all leverage speculators have been eliminated, whether you are 20× leverage, 10× leverage, 5× leverage, or even 2× leverage.

The background of the first dump

On the one hand, bitcoin rose from the lowest point of $3200 to the highest point of nearly $14000. Many people believed that the bull market has really arrived, $20000 became an expectation for most bitcoiners; On the other hand, it’s only less than a year before bitcoin halving.

The background of the second dump

On the one hand, bitcoin price rose from $6000 to $10000, reaching a peak of $10500; On the other hand, it was only two months before bitcoin halving, and the market agreed that halving would bring a bull market, some even believe before halving, bitcoin would slowly reach new highs step by step. At that time, many Internet celebrities expressed similar views as “bitcoin price won’t fall below $10000”.

 Consensus and reverses

Although there are some differences between the two dumps, they have a lot in common.

They are all look good in the early stage. After a long-term slow rise, they have made a huge increase from the low point in the early stage. Under this premise, there is a demand for a callback as the market had been booming for a long time.

Fundamental good news is of course a major good news, but this good news is generally reflected in the long-term price, not directly corresponding to the short-term price. The real determinants of short-term prices are other factors, such as short-term market entry funds, leverage, short-term news.

Because there is fundamental good news, the market with huge differences has rarely reached a consensus, which will be reflected in the price, but also in the choice of more people adding high leverage, leading to the accumulation of risk.

The long-term, medium-term and short-term factors achieved resonance, while the speculators and hodlers reached a consensus as well. This resonance and consensus are so strong that it releases huge energy in a short time. Once the energy is released over, the subsequent funds will not be enough to keep up with it. The real determinant of the market is the follow-up fund. Once the market has formed a strong consensus, the market is likely to encounter a big reversal.

When there is the strongest consensus in the market, the leverage ratio will also stand at peak. Because of the existence of mass leverage, the market reversal will be very fast. Then the high-leveraged accounts get lost, which causes the price to fall. The price dump leads to the spread of panic, which subsequently leads to a large number of selling. Generally speaking, as long as bitcoin falls by more than 10% in a short period of time, we should be careful to observe market sentiment, because the spread of panic is likely to cause a series of problems such as subsequent DeFi clearing, leading to the emergence of the extreme dump.