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The top three reasons why Bitcoin price fell 14% to $ 8,600 in 15 minutes

June 2, 2020

Bitcoin (BTC) price dropped 14% from $ 10,180 to $ 8,600 at BitMEX in less than 15 minutes.

The three main factors that caused the price drop were: The long contracts that make up the vast majority of the Bitcoin market, BTC’s response to multi-year resistance of $ 10,500 and the big whale sale.

BTC USDT 4 hour chart. Source: TradingView

The top three reasons why Bitcoin price fell 14% to $ 8,600 in 15 minutesThe top three reasons why Bitcoin price fell 14% to $ 8,600 in 15 minutes

4-hour chart of the BTC / USDT pair. Source: TradingView

Bitcoin has already been delayed for a bullish contraction

Before the price correction, the funding rate for Bitcoin and Ether (ETH) was 0.16% and 0.19%, respectively.

The term funding rate on the Bitcoin futures market means that long or short contract holders have to pay their counterparties to balance the market.

Assume that the price of Bitcoin rises and the funding rate, which is generally 0.01%, rises to 0.16%. If a trader has a long position of $ 100,000, the trader must pay $ 160 every eight hours to another holder of a short contract with a short position of $ 100,000.

The financing mechanism prevents the market from deviating from majority long or short contracts over a longer period of time.

A sign that something was wrong was that Bitcoin’s funding rate was too high before the price drop, and around 75% of the market had long contracts.

Most traders expected the price of Bitcoin to rise and entered into aggressive long contracts in the market. Inevitably, there was a bullish decline, with contracts worth around $ 120 million liquidated.

BitMEX XBTUSD liquidations. Source: Skew

Settlements of the XBT / USD pair under BitMEX. Source: Skew

The BTC price also fell at the time the US market opened. He suggests that the CME bitcoin futures market is partly behind the BTC sell-off.

Cryptocurrency investor PlanB said::

“BTC is lowering $ 1,000 in 15 minutes over the US opening (exactly the same time and volume as from May 20-21).”

BTC is rejected in a resistance of several years

Bitcoin has tested the $ 10,500 resistance level three times in the past eight months.

The best-placed cryptocurrency on CoinMarketCap rose to $ 10,500 in October 2019. It dropped to $ 6,400 in four weeks and hit a minimum in six weeks.

In February 2020, Bitcoin made another attempt to break the USD 10,500 resistance level. After violently declining $ 8,400, BTC fell to just $ 3,600 in the following four weeks.

This is the third time that BTC has tested the same level in the past three quarters, and also the third time that it has had a similar response.

Since BTC cannot reach the same level three times in a row, traders are asking themselves whether BTC is ready to break it and initiate a reasonable upward trend in the coming weeks.

Given the intensity of the downturn and collapse of the short-term market structure, the likelihood that Bitcoin will test the highest short-term resistance levels at $ 11,500, 12,400, and 14,000 decreased with the price’s recent move.

Whales moved their butts

A few hours before the crash, the whales transferred their money to BitMEX and Binance.

Ki Young Ju, CEO of CryptoQuant said::

“Significant multiple BTC entries from Binance and BitMEX a few hours before the crash”.

BitMEX and Binance will flow to $ 8,600 before the decline. Source: CryptoQuant

BitMEX and Binance inputs before dropping to $ 8,600. Source: CryptoQuant

The combination of the whales that sold Bitcoin directly in the course of a multi-year resistance with high funding and for which the majority of the market had long contracts triggered a strong upward trend in a short period of time.