The blockchain community saw the single sharpest one-day drop in hash rate since Nov 2017. The hash rate on the network essentially halved, causing mayhem in Bitcoin price as it crashed.
Bitcoin on-chain analyst Willy Woo (@woonomic) has tweeted a thread on the post mortem of the market crash. Woo tweeted:
“Chinese miners went offline 3hrs into the difficulty adjustment. The difficulty adjusts every 2 weeks to match the natural increase in hash rate from miners. This keeps block times to a steady 10 mins. If you’re going to slow the network down, this is the best window to do so.”
Events That Followed The Power Outage
On April 15th, China’s Xinjiang Province suffered a power outage due to a coal mine explosion. The region powers a significant amount of the Bitcoin mining network. Local news on April 15th carried the story. A day after the power outage in Xinjiang, on April 16th, 9000 BTC was sent to Binance as a sell-off. Woo says,
“I’d note that Binance serves volume from Asia more than the West. It’s likely this was sent in from a whale with closer knowledge to happenings in China.”
The 9000 BTC was deposited into Binance 9.5 hours after the difficulty adjustment began. This provided enough selling pressure to drop Bitcoin below the $59000 support.
Short-Term Liquidation Brings Price Crashing
The Bitcoin value dropped further due to the sell-off of quarterly futures that more sophisticated traders use. The derivative markets on which these traders base the sell-off were underway since April 13th.
The two combined pressures were enough to tip the price below liquidation levels and triggered a cascade of automatic sell-offs. 9000 BTC was sold before the crash, and 20700 BTC after with ~$4.9 billion contracts liquidated.
Liquidation by short-term speculator positions forced the price of Bitcoin down violently. Including alt-coin markets, the liquidation figure stands at a total of ~$9.3 billion. That’s a staggering 1 million accounts liquidated in total.
Event Could Have Been Manipulated
The timing of the events is very interesting, says Woo, further adding:
“We have 11 more days before the next difficulty adjustment corrects for any loss in miner hash rate. Note the hash rate is already returning to the network. 9,000 BTC in, before the crash 20,700 BTC out, after the crash. I wonder if that’s the same whale?”
There is a high probability that this entire event was manipulated. Some in the Asian market could have caught the news of the power outage earlier than the rest of the world. The initial sell-off was due to the anticipation of miners going offline in China.
The network has seen a retail influx in the last 2-3 weeks, with unprecedented numbers of new users arriving onto the network per day. While the selling pressure triggered liquidation from short-term investors, long-term fundamentals are still very strong.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.