The recent flash crash of Bitcoin and its enormous liquidations has shocked many investors, prompting questions about the underlying causes. So what are the reasons for the sudden downturn?
Below are the three key factors that are the driving force behind Bitcoin’s price dropping by over 5%.
High Funding and Open Interest
The first thing is funding and open interest levels in the Bitcoin ecosystem. When the financing metrics and open interest are high, it indicates a proliferation of leveraged positions, which leaves Bitcoin vulnerable to price manipulation. Whales or large holders of Bitcoin might take advantage of this situation to trigger a price drop by selling off their holdings.
Whale action has subsequently led to Bitcoin’s entire network witnessing a total liquidation of $157 million in the past hour alone, with long orders totaling $144 million.
Grayscale Outflow
The second reason is the Grayscale Bitcoin Trust (GBTC) outflows. GBTC, a popular investment vehicle for institutional investors to invest in Bitcoin ETFs, has decreased in demand. These massive GBTC outflows might contribute to a drop in Bitcoin’s price, now trading at around $66,608. Ethereum has also experienced a notable decline, briefly falling to $3,319 before stabilizing. The sharp decline in prices resulted in widespread liquidations across the crypto market.
Historical Precedent
Thirdly, Bitcoin’s historical patterns, particularly its tendency to experience price corrections before halving events. Bitcoin’s halving, which occurs approximately every four years, is due this month, on April 18th!
The recent drop in Bitcoin’s price combines three factors: high leverage in the market, institutional outflows, and historical patterns related to halving events.
Risk Disclaimer
Although Sponsored Trading can be profitable, it is associated with a significant risk of losing your investment. The risks will increase when trading on margin companies. Traders must exercise due diligence and be careful when making their trading decisions. It is the sole responsibility of the Trader to learn and acquire the knowledge and experience required to use the Trading Platform and anything that will be required to trade properly.
