Bitcoin plummeted on Monday morning, shortly after looking prepared for a convincing move above $ 50,000.
The highest cryptocurrency fell from almost $ 49,000 to $ 45,926 during the early Asian hours and was last seen changing hands near $ 47,790 – down 1.8% on the day, according to data from CoinDesk 20.
The drop surprised many investors, as a remarkable historic milestone had appeared amid the optimism generated by the recent wave of institutional adoption.
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So what happened? Here are three reasons that may explain the sudden drop in prices.
1. Financing stress
“Bitcoin and other cryptocurrencies, in general, looked overheated, and the drop in the Asian session was probably a ‘reset of funds’ needed for a sustained move above $ 50,000,” Matthew Dibb, COO and co-founder of Stack Funds told CoinDesk
In fact, the cost of holding long positions in the perpetual bitcoin futures market, also known as the financing rate, rose to a 12-month high of 0.109% on Sunday, indicating an excess of high leverage, or overheating, in the market.
The average funding rate started to rise in late January and reached peak levels of several months in the wake of Tesla’s bitcoin investment disclosure last Monday. This suggests that the recent hike below $ 40,000 was driven mainly by leverage on derivatives. As such, there was always a risk of replenishing financing.
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The price drop has liquidated more than $ 300 million in bitcoin long positions so far, according to the Coinalyze data source – that’s about 30% of the total $ 1.33 billion purchased settlements seen in the equity market. cryptography.
Many alternative cryptocurrencies like XRP, XLM, LINK, ADA and some decentralized financial tokens experienced double-digit price drops in the Asian session, overshadowing the 6% decline in bitcoin. According to Dibb, the broader sale contributed to bearish pressures around bitcoin.
According to a tweet from for market analyst Josh Rager, the rise in altcoin became “euphoric” last week, meaning a price drop was delayed.
2. Weakened institutional demand
The Coinbase premium indicator from analytics firm CryptoQuant turned negative on Sunday in a sign of weak demand from major investors.
The indicator measures the spread between Coinbase Pro’s BTC / USD pair and Binance’s BTC / USDT pair, which includes the USD-linked stablecoin pair. The indicator is widely followed by traders, as Coinbase Pro is considered synonymous with individuals with high net worth and institutional investors. A positive spread implies strong institutional inflows and vice versa.
“The prize fell almost to – $ 80 during the early European hours on Sunday and remained largely neutral when the price was ranging between $ 48,000 to $ 49,000,” CryptoQuant CEO Ki-Young Ju told CoinDesk. “Flows of weak points signaled room for correction”.
Bitcoin’s recovery since the beginning of October is close to $ 10,000, largely fueled by increased demand from individuals and institutions with high net worth. The cryptocurrency has been traded consistently at a Coinbase premium of around $ 100 across the four-month bull market, with the few cases of negative premiums paving the way for price cuts.
Market analyst Joseph Young quoted a negative Coinbase premium and stagnant grayscale entries as Sunday’s low price developments, pointing to $ 48,000 as the level to be beaten for bulls.
The seven-day average of gray inflows peaked in mid-January and has been trending south since (except for an increase on Friday), according to data source Glassnode. While retail investors trade on the spot market, many institutional investors gain exposure to bitcoin through the regulated Grayscale Bitcoin Trust (GBTC).
The grayscale, based in New York, is owned by the Digital Currency Group, the parent company of CoinDesk.
3. Graph-based factors
The recent increase from $ 30,000 to $ 49,000 lacked volume support on prominent exchanges like Coinbase.
The 10-day moving average of the daily volume has been decreasing since the beginning of February. A low volume price increase is usually short-lived and is subject to sudden setbacks, similar to what was seen earlier today.
The broader bias remains optimistic
Bitcoin’s latest price drop is typical of the retractions seen during previous bull markets, and the path of least resistance remains on the upside.
“We’re probably going (I think) into a brief, minor fix right now, but we’re still in the middle of a violent bull run that will soon be more violent,” Ari Paul, CIO at BlockTower Capital, tweeted.
According to analysts, more institutions may soon emulate Tesla’s move to diversify bitcoin cash assets, leading to a convincing move above $ 50,000.
So far, the perpetual financing rate has normalized to 0.05% and Coinbase’s premium has rebounded to $ 50. Bitcoin has regained some balance in the past few hours to trade well above $ 47,000.
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