Economist Raoul Pal has shared his insights regarding the recent downturn in Bitcoin’s value.
Pal believes that the current market retreat was triggered by a significant drop and extensive liquidations that occurred on October 10th, an event that is still unfolding.
He emphasized that the incidents of October 10th were pivotal for market dynamics, particularly highlighting the technical difficulties faced by Binance, which is recognized as the largest cryptocurrency exchange globally. Pal pointed out that during this time, market makers’ APIs were disabled, leading to a drastic reduction in liquidity. This situation was exacerbated by market makers’ inability to provide necessary liquidity support, resulting in on-chain liquidations whose repercussions extended to other trading platforms.
According to Pal, various exchanges have been compelled to manage substantial liquidation volumes across both major and minor cryptocurrencies. This necessity arises either from having their own market-making entities or utilizing systems designed to stabilize prices. He likened this scenario to the “Flash Crash” experienced in U.S. stock markets back in 2010 when similar abrupt liquidity disruptions took place.
Pal contended that positions established during such extraordinary circumstances should be gradually unwound over time—similar to practices observed within large-scale market-making operations—indicating that tens of billions of dollars worth of liquidity support are being slowly withdrawn from circulation at present. He noted this withdrawal process has led some participants into considerable losses while others have reaped significant gains; he stressed these developments should not be interpreted as manipulative actions within the marketplace.
If any intervention could be characterized as such, according to Pal, it would merely represent temporary liquidity assistance aimed at averting a total price collapse due to technical failures affecting market makers. He attributed the ongoing decline primarily to those providing liquidity now entering a phase where they are minimizing their exposure risks.
Pal remarked that these sell-offs exert greater pressure on prices because of currently diminished liquidity levels and mentioned how year-end audits alongside seasonal constraints have further expedited this trend. Nevertheless, he concluded his analysis with optimism: “This period will pass,” suggesting that what we are witnessing is not destined for permanence.
*This content does not constitute investment advice.