Bitcoin (BTC) slipped from $ 10,000 to just $ 8,100 in the night, with the price slumping 9% in just an hour. As a result, long positions valued at $ 200 million were sold, which has severely affected the Bitcoin futures market.
The three main reasons for the sudden crash are: First, strong multi-year resistance to the psychologically important $ 10,000 hurdle, second, major Bitcoin investors who have “shorted” the market through crypto-derivatives, and third, extreme volatility from an increased Interest in the run-up to bitcoin halving.
Strong resistance at $ 10,000
Since mid-2018, there has been strong resistance for the market-leading cryptocurrency in the range between $ 10,200 – $ 10,500.
When this mark was cracked in June 2019, the price skyrocketed to $ 14,000. However, Bitcoin has failed this hurdle 5 out of 6 times in the past two years.
Bitcoin fails at $ 10,000 mark. Source: Tradingview
On May 8, Bitcoin was again rejected at the $ 10,000 mark, which was a first hint that a stronger downturn was imminent in the following days.
When the whales, the major Bitcoin investors, started selling their positions at $ 9,900, a domino effect emerged on BitMEX and Binance Futures, which resulted in the release of a total of $ 200 million in Bitcoin futures .
Large investors pull the plug
As soon as it became clear that Bitcoin had failed again at the important resistance range of $ 10,200, the whales sold off their positions on all major crypto exchanges and “shorted” the market.
The open interest, a key figure that describes the volume of all “open” futures, then suddenly fell on the four large derivatives trading platforms Binance Futures, BitMEX, Deribit and OKEx.
Open interest for Bitcoin futures on BitMEX. Source: Hsaka
The slipping open interest was again a sign that selling pressure is building up as futures traders who had too much leverage in the market were suddenly forced to sell too.
This was again confirmed by a negative funding rate of -0.05% on Bybit, Binance Futures and BitMEX. When a negative funding rate interacts with falling prices, it means that the vast majority of traders hold short positions because they anticipate another downturn.
In other words, many traders, especially big investors, suddenly (during an upward trend) started betting against Bitcoin before a crucial hurdle, which pushed the price all the more down as this hurdle could not be passed.
Newcomers create volatility
In the run-up to the Bitcoin Halving, which will take place on May 12, trading activity on all major crypto exchanges has increased significantly.
The CME options exchange recorded a record high for its open interest, while Deribit also achieved a record level of open interest for its own Bitcoin warrants. On the spot markets, i.e. the “normal” crypto exchanges, trading volumes similar to the 2017 hype were again achieved.
Whenever there are many new market participants before a big event, the crypto market opens up for a strong sell-off.
In 2016, the situation was similar before the last halving, when the Bitcoin price had slipped by more than 30% because traders had sold in large quantities at the first opportunity.
Conclusion: An upward trend that has reached its limit at $ 10,000, in combination with large investors who have started selling at $ 9,900 to be ahead of other traders, and increased interest in the run-up to Bitcoin Halvings, together caused yesterday’s crash.
–
