Bitcoin and other cryptocurrencies have had another roller-coaster week. This is what might happen next.

There are two Bitcoin markets. One of them is dominated by regulated exchanges and mainstream brokers, attracting investors who buy Bitcoin through their PayPal or Robinhood accounts. Most people in this first market bet on the rise of Bitcoin and plan to hold it for a longer period of time.

The other market mainly exists in unregulated exchanges, where traders use derivatives, take advantage of huge leverage, and usually don’t understand the direction of Bitcoin: whenever it falls, you can earn how much. Many transactions are conducted using futures contracts called perpetual swaps.

Joshua Lim, head of Derivatives at Genesis Global Trading, said that during periods of high volatility, the size of the second market was 20 times the size of the first market. On days like Wednesday, when Bitcoin drops 40% to a low of $30,200 in 12 hours, the second market may turn the decline into a rout.

The sell-off is not just a blow to Bitcoin-at the low point, the cryptocurrency market lost nearly $1 trillion, and hot assets like Ethereum and Dogecoin fell even more than Bitcoin.

Bitcoin bounced back over $40,000 in less than a day, but recently fell to about $38,000. Temporary investors in cryptocurrencies should pay attention. The public listing of Coinbase Global (Stock Code: COIN) stock has helped to upgrade cryptocurrencies for several months, but now there is a news vacuum with high volatility-historically dangerous conditions for Bitcoin. Some players started to quit. J.P. Morgan stated that this is the first time in months that a professional investor has transferred its crypto assets to gold.

Significant positive events have led to similar trading patterns in previous cryptocurrencies. In 2017, the market began to sell off after the launch of Bitcoin futures, and it has not recovered for many years. This time, the cryptocurrency investor base has deepened, and when the price reached a low of $30,000, institutions began to buy seriously. The support at these levels seems solid. But some people engaged in derivatives trading do not think that the shortcomings have been completely eliminated.

The combination of low liquidity and high leverage in the spot market means that even if the value of Bitcoin is 100 times its value at the time, Bitcoin is as turbulent as it was 5 years ago-a phenomenon that has hardly been heard in other markets . Generally speaking, assets have less volatility as their value grows and their investor base expands.

Over the past few months, as traders expect Coinbase to be listed on the Nasdaq and bet on new use cases, such as irreplaceable tokens and decentralized finance, the crypto market has begun to expand. From October to April, Bitcoin rose steadily from $10,000 to $60,000.

There is some controversy about the direct cause of Wednesday’s sell-off, but after Tesla CEO Elon Musk announced that the company will no longer accept Bitcoin as payment because it contributes to climate change, people’s sentiment has continued well. A few days.

China’s increasing crackdown on cryptocurrency activities this month has also hurt people’s emotions. The sell-off exposed the turbulent dynamics of the crypto market. But it is worth remembering that cryptocurrencies have overcome these obstacles before and now seem to be closer to real-world use cases than in previous cycles. In other words, don’t expect super bosses or crooks to cash in.

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