Bitcoin Price Declined from $10,000 Highs to $9,000
In less than 28 hours, Bitcoin’s (BTC) price crashed from $10,160 to $9,012 on BitMEX, plunging 11.3%. Also, it coincided with a sharp 5.6% decline from the Dow Jones Industrial Average (DJIA).
Three major factors triggered the unexpected downtrend of Bitcoin; the liquidation of $78 million worth of longs; relationship with the stock market since March 2020; and the strength of the $10,500 multi-year resistance zone.
The price of Bitcoin last March 13 dropped to as low as $3,600 on BitMEX. Then, the move liquidated more than a billion dollars in futures positions. The downtrend became too powerful that BTC technically could have reached zero.
Major cryptocurrency derivatives exchange FTX’s CEO, Sam Bankman-Fried, stated the following Bitcoin’s fall to $4,000, “R was huge today. There were endless liquidations, and the BitMex was basically nonexistent. It means BTC might go to 0. But it didn’t.”
After that, Skew’s data showed that Bitcoin had become somehow correlated with the U.S. stock market.
Just before the decline in the price of BTC to as low as $9,012, on June 11, pre-market data of the Dow Jones signaled a 900-point fall. Aside from that, the Dow plummeted about 3% during an after-hours trading session – before the U.S. stock market opened.
At the time equities dropped, Bitcoin’s price followed shortly. Then, the stock market correction did not necessarily cause BTC to fall. Instead, the uncertainty all over asset classes might have fueled a short-term decline for BTC.
Also, other assets and stores of value fell off simultaneously. In two hours, gold plummeted by 1%, despite its newfound momentum since early June.
The first slump in the Bitcoin price caused an immense number of long contracts in the futures market to get liquidated. For the BTC futures market, traders use leverage ranging from 1x to 125x to trade Bitcoin with added risk. Then, higher leverage makes BTC vulnerable to a sharp pullback in a short period of time.
In BitMEX, in an hour, they liquidated approximately $50 million worth of futures contracts.
In the recent fall, the futures market might have affected the price of Bitcoin more heavily. And this was due to the volume of the spot market dropping since early May.
In addition to that, that fall occurred at a pivotal point for the price of Bitcoin in a technical sense.
Before, the $10,000 to $10,500 range has served as an important multi-year resistance range. But in October 2019 and February 2020, BTC dropped by 39% and 65% after the rejection of $10,500.
Furthermore, a confluence of Bitcoin arriving at a critical area of liquidity, a sudden plunge of the U.S. stock market, and the liquidation of tens of millions of dollars worth of longs caused a rapid sell-off.
Looking at the short to medium-term, the most massive source of selling pressure for Bitcoin is miners.
As of now, data from ByteTree indicates that miners are not selling more than they mine on a daily basis, and this is about 900 BTC a day.
In the case, miners start to sell more Bitcoin than their daily revenues to cover operational losses and the sell-off in the futures market continues, it would decide the short-term price trend for Bitcoin.
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