Why Did Bitcoin Fall from $126,000 to These Levels? $350 Million Investor Raoul Pal Gives His Answer

Economist Raoul Pal offered his assessment of the background to the recent decline in Bitcoin.

According to Pal, the current pullback began with the sharp drop and widespread liquidations on October 10th and is still ongoing.

Raoul Pal stated that the events of October 10th were critical in terms of market structure, drawing attention to the technical problems experienced at Binance, the world’s largest cryptocurrency exchange. According to Pal, the disabling of market makers’ APIs during that period led to a sudden dry up of liquidity. This, coupled with the inability of market makers to support liquidity, caused on-chain liquidations and the effect spread to other exchanges.

Pal stated that some exchanges have had to handle significant amounts of liquidation in both large and small-scale crypto assets, either because they have their own market makers or because they use mechanisms to support prices. Comparing this process to the “Flash Crash” in the US stock markets of 2010, Pal recalled that similar sudden liquidity shocks occurred then as well.

Pal argued that positions created during such extraordinary periods should be reduced over time, just as in a large market-making operation, noting that tens of billions of dollars in liquidity support are currently being gradually withdrawn from the market. He stated that this process has resulted in significant losses for some parties and high profits for others, adding that what is happening should not be seen as market manipulation.

According to Pal, if there is any intervention to speak of, it would be described as temporary liquidity support aimed at preventing a complete collapse of prices when market makers were disabled due to technical problems. He stated that the main reason for the current decline is that the actors providing this liquidity are now entering a process of reducing their risks.

Pal stated that these sales are having a stronger impact on prices due to the currently weak liquidity, adding that year-end audits and year-end liquidity constraints have accelerated the process. Despite this, Pal concluded his assessment by saying, “This period will pass,” indicating that the current situation is not permanent.

*This is not investment advice.