Bitcoin recently experienced a significant drop, falling from over $64,000 on Monday to as low as $58,000 yesterday, marking a 10% decline within two days. This sharp downturn has sparked concern among the crypto community, leading to various interpretations of the market’s behavior.
A report from CryptoQuant, an on-chain data analysis platform, highlights five key factors that may have contributed to this decline.
Short-Term Holders and Market Fragility
One of the primary factors identified is the role of short-term holders who created a resistance level at their break-even price. Earlier this month, a similar sharp drop in Bitcoin’s price left many short-term holders with an average loss of 17%. When the price recovered to their break-even point, these holders sold off their positions, creating resistance that hindered further upward movement.
The report also emphasizes the fragile environment created by traders speculating on higher prices. The open interest in Bitcoin futures surged from $13.5 billion to $17.9 billion, a 31% increase since August 5th. Positive funding rates indicated that traders were expecting continued price increases. However, this optimism led to a precarious situation where any negative price movement could cause significant instability.
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Spot Inflows and Market Liquidations
The report also notes an increase in spot inflows during the price decline, suggesting that large holders were moving their Bitcoin onto exchanges, possibly to sell. This added selling pressure exacerbated the already fragile conditions in the futures market.
As the price continued to drop, long positions in both Bitcoin and Ethereum were liquidated – $90 million for Bitcoin and $55 million for Ethereum. These liquidations, the highest since August 5th, reduced open interest by $2.2 billion, further destabilizing the market.
Conclusion
CryptoQuant concludes that the recent price drop has created a need for the market to stabilize. They advise monitoring on-chain data in the coming days to better understand the ongoing situation. Meanwhile, Bitcoin has continued its decline over the past 24 hours, falling by an additional 3.2%, with a current trading price of $59,841 at the time of writing.
Cre: bitcoinist
I’m Jessi Lee, currently living in Singapore. I am currently working as a trader for AZCoin company, with 5 years of experience in the cryptocurrency market, I hope to bring you useful information and knowledge about virtual currency investment.
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