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Whale dumping to liquidate the leeks? Listen to how the founder of Synthetix interprets the Bitcoin crash.

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Whale dumping to liquidate the leeks? Listen to how the founder of Synthetix interprets the Bitcoin crash.

Is Bitcoin's sudden drop due to whale selling? Kain Warwick, founder of decentralized exchange Synthetix, offers guidance to novice investors.

Did Whale Dumping Cause the Crash?

Since yesterday afternoon at 4 pm, Bitcoin has been plummeting, with a peak decline of over 20%. The market is engulfed in panic selling, with Coinbase experiencing an irrational trade of selling 180 bitcoins in a single transaction, causing an extreme drop of $1,200 in Bitcoin price in just one second.

For those who have been involved in cryptocurrency trading since 2017, such a decline may not be alarming, but for investors who have entered the cryptocurrency market in the past year or two, it may be difficult to withstand such drastic price fluctuations. Many believe that this "rinsing" crash was caused by whale or early low-cost holders selling off, but Kain Warwick, the founder of the decentralized exchange Synthetix, disagrees with this view and has posted a series oftweets explaining the main reason for this drop.

Kain Warwick stated that this drop was not driven by large-scale dumping by early investors or whales, but rather by the "deleveraging" pullback that the market is facing due to high leverage. Kain Warwick explained that most OG token holders have experienced the bull-bear transition in 2017, and these early holders had already taken some profits during the previous ATH period because they had learned their lesson and did not want to miss the peak as they did in 2017. Kain Warwick used himself as an example:

"I liquidated about 5-10% of my ETH holdings between $500 and $1200. Above $1,200, I won't sell the remaining positions unless the price reaches $3,000. If we don't hit our target price during this cycle (we will), then I will continue to hold. Many people I know have the same mindset as me."

In other words, the current price level is not enough to make early holders sell off their positions. So, what is the reason for the crash?

Tomorrow's Market Trend is Key

Kain Warwick pointed out that the biggest problem in the current market is that the current price increases are driven by new leveraged funds, and early holders will only increase their positions appropriately during significant pullbacks, rather than dumping to cause others to be liquidated. The trend of this bull market mostly involves slow rises and sharp falls, and the sharp falls are not caused by early investors selling off in a one-way market; instead, it is a normal phenomenon of the market's bullish pullback and deleveraging. This is why recent sharp falls have been able to hold the pullback.

Furthermore, Kain Warwick pointed out that back in August last year, he did not have much optimism about Bitcoin because he did not believe that "institutional entry" was real. However, various signs indicate that institutional funds seem to be entering Bitcoin. The main characteristic of institutional entry is that there will be little price fluctuation during the week, but significant volatility over the weekend. The trend of the past few weeks has followed this pattern, and tomorrow will be key to proving this theory. If Bitcoin prices can hold steady and reduce volatility when the U.S. market opens on Monday, it can be basically confirmed that institutions have become part of the market. Additionally, if institutional entry is a fact, they must have enough confidence, and it can be reasonably inferred that they will not use leverage to build positions, so a 5% fluctuation will not be a reason for them to sell off.

Avoid Overreacting to Intraday Price Responses

Kain Warwick reminds novice investors not to overreact to intraday or post-market market responses, and not to overuse leverage, in order to weather the intense price fluctuations of the past few days with a calm mindset. Although a $10,000 drop may seem like a lot, do not forget that just a few months ago, the trading price of Bitcoin was only $10,000. Compared to such gains, a $10,000 drop is not that significant.

Finally, Kain Warwick also emphasized his optimism for the DeFi concept sector this year, stating that even if Bitcoin does not continue to surge, DeFi could become as active as it was in the summer of 2020.