The price of Bitcoin (BTC) dropped from $ 10,000 to $ 8,100 in just over a daywhile 9% fall in a single hour. It liquidated long positions of USD 200 million and destroyed the futures market.
The three main reasons that triggered the huge correction in Bitcoin were: a strong multi-year resistance area above $ 10,000, the whales that shortened the BitMEX market, and extreme volatility before halving.
$ 10,200 to $ 10,500 is a strong multi-year resistance area for Bitcoin
Since mid 2018 The range of $ 10,200 to $ 10,500 served as a historically strong resistance area for the top rated cryptocurrency by market cap.
After its first surge above $ 10,500 in June 2019, which led to a rapid rally to $ 14,000, Bitcoin has failed to exceed this level five out of six times in the past two years.
Bitcoin rejects $ 10,000 before it is cut in half. Source: trade view
When the price of Bitcoin was initially at $ 10,100 on May 8, this signaled the rejection of an important level of resistance and made BTC susceptible to a sharp correction.
When the whales started selling at $ 9,900, this led to a cascade of long position contract processing, mainly on BitMEX and Binance Futures. More than $ 200 million in long positions were settled within an hour.
Whales moved quickly to sell BTC at the rejection site
Nearly Once the $ 10,200 rejection was confirmed, the whales began to dramatically shorten Bitcoin on the major cryptocurrency exchanges.
The open interest in the four most important futures exchanges, including Binance Futures, BitMEX, Deribit and OKEx, collapsed. The term open interest refers to the total number of contracts in long and short positions that are open at a particular point in time.
Open interest of the BitMEX Bitcoin futures contract. Source: Hsaka
The rapid decline in open positions led to increasing selling pressureresulted in overly leveraged buyers being trapped in their positions on the futures market.
The funding rate in Bybit, Binance Futures and BitMEX remained at around -0.05%. A negative financing rate when the BTC price falls means that the vast majority of the market has short contracts and is waiting for BTC to continue falling.
In other words, many traders, especially whales, who bet against BTC at a critical reversal of a long-term trend triggered a sharp decline in a short period of time.
Massive volatility before halving
Before the Bitcoin block reward halved on May 12, trading activity on all major cryptocurrency platforms increased significantly.
CME had a record open interest, Deribit had an all-time high for its option contracts and spot exchanges had a 2017 volume in the past three weeks.
When many new investors enter the market in anticipation of a major event, the market opens up for a sellout.
For example, Bitcoin’s price fell more than 30% after halving in 2016 when traders responded by responding to the news’s sale.
The coincidence of an exaggerated Bitcoin rally at $ 10,000, leading Whale retail investors with a $ 9,900 sell-off, and high expectations for the halving result in a short-term decline before Bitcoin’s halving on December 12. May.