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3 Reasons Bitcoin Fall Down $3,000 But Still Bullish !

Bitcoin suffered a price crash earlier Thursday, having missed record highs by a narrow margin earlier this week. 

The highest market value cryptocurrency slipped from over $19,300 to $16,327 during early European trading hours and was last seen trading close to $17,200, marking a 10 % drop on a 24-hour basis, Given that the cryptocurrency was trading only 2 % short of its record peak of $19,783 on Wednesday, the sudden fall caught several traders off-guard. 

So, what's behind that decline of $3,000? There are 3 main reasons.

Excess leverage

Matthew Dibb, CEO of Stack Funds, told CoinDesk, 'Bitcoin has fallen victim to a large unwinding of leverage trades in derivatives listed across major exchanges.' Over the last 24 hours, almost $2 billion worth of derivatives were liquidated. 

According to Bybit data source, more than $1.6 billion was closed during the past 12 hours.

Leverage deduction had been expected because over the last couple of days the cost of holding long positions, also known as the financing rate, had increased sharply to 0.098%, a sign of over-powered or overheated on the market. 

The financing rate is decided every 8 hours and is paid. According to data source Glassnode, the funding rate has dropped back to 0.011 % with the price drop. Excess leverage has been crowded out in effect.

Technical pullback

On the technical charts, Bitcoin's rally from $10,000 to $19,400 seen over the past seven weeks looked overstretched. The momentum was so strong that, despite an overbought reading on the 14-day relative strength index, the cryptocurrency consistently traded above its 10-day moving average (MA) throughout the climb (RSI).

Assets seldom see a 90-degree rally, because at regular intervals, speculators tend to book profits, pushing prices down to their short-term moving averages. During the previous bull markets, the cryptocurrency saw several pullbacks of 20 % or more.

Today's price drop has taken the cryptocurrency well below its 10-day average and has enabled the RSI to realign in a more bull-friendly way. 

"It's a healthy pullback," said Dibb from Stack Funds. 

Price rallies with regular pullbacks are more sustainable than the almost 90 degree increases, according to chart analysts. As noted by Deribit Insigh, some traders had positioned for the pullback by buying put options, or bearish bets.

Other factors amplified sell-off

Coinbase CEO, Brian Armstrong's tweet a thread that concerning the U.S., according to trader and analyst Alex Kruger, The rumored plans of the Treasury Department to track owners of self-hosted crypto-currency wallets weakened the bullish move, enabling a price pullback. 

Against a background of euphoria and unsustainable high long-term leverage, this [regulatory concerns] resulted in the largest 24-hour drop since March," Kruger told CoinDesk in a Telegram chat." 

However, it would be extremely bearish if what Armstrong spoke of were to come to be. I see this as highly unlikely (in the short term) as of now,' Kruger said. The downward move may also have been amplified by the the announcement by OKEX's prominent cryptocurrency exchange that it would resume withdrawals.

Sui Chung, CEO of CF Benchmarks, said in a statement provided to CoinDesk, 'Most of the frozen bitcoin [on OKEx] had traded up about 70 %, so there were a lot of unrealized profits locked up there. 

"It is likely that many traders sold them for dollars and stablecoins to realize those gains once these coins were free to move, adding greater momentum to the selling." 

When the exchange lifted the suspension at 08:00 UTC today, Bitcoin had already fallen to around $17,600 and fell to $16,350 in the next hour. When bitcoin traded near $11,500, OKEx suspended withdrawals on Oct 16.

Still bullish

On the higher side, the path of least resistance remains for bitcoin. A noise against the larger bullish trend is the latest price drop," Kruger said." 

Indeed, despite the price drop, bullish macro factors such as increased institutional involvement, record money printing by central banks and the search for yield remain intact. 

Holding sentiment on Thursday remains strong, with the number of coins held at 2,384,913 on cryptocurrency exchanges, according to data source Glassnode, the lowest level since Aug. 2018.

The information suggests investors view the current drop as a pullback from the bull market and remain confident about the long-term prospects of the cryptocurrency. This year the metric has decreased by over 17 % which means there has been a drop in liquidity on the market.

Finally, the excessive leverage, as noted above was cleared out by today's price plunge. Bitcoin can now chart a more sustained rally to record highs, with the cost of holding long positions normalized. 

Heusser's Crypto Broker expects the cryptocurrency to consolidate in the short term in the range of $17,500 to $19,000 before resuming its upward trend. 

Siddharth Menon, co-founder and COO of the Mumbai-based WazirX exchange, said: 

"Bitcoin has yet to peak." 

I've also seen a lot of pro traders take Bitcoin positions, too. These are healthy positions because when it goes up or down, they do not go all-in but add funds. At $17,040, Bitcoin was last seen trading slightly up.

    "Before we break $20,000, I think this is a correction," said Ki Young Ju, CEO of analytics firm CryptoQuant. “Other long-term on-chain indicators like BTC and stablecoin reserve say the potential buying pressure still prevails so far.”

While the reason for the drop is not completely clear, the sell-off move comes at a time when Brian Armstrong, CEO of Coinbase, expressed his concerns over the U.S. on Wednesday night. 

Rumored plans by the Treasury Department to attempt to track owners of self-hosted crypto-currency wallets. It also came soon before an expected bitcoin flood on the market that had been frozen due to an absent key holder on the OKEx exchange. At 08:00 UTC, OKEx restarted withdrawals, well after the main part of Thursday's drop.

As noted by derivatives data provider Bybt, the plunge liquidated $950 million worth of positions across major exchanges. 

Said Jehan Chu, co-founder and managing partner of Kenetic, a Hong Kong-based blockchain investment and trading company.

   "The latest drop in BTC prices is the first of many tests for new money on whether they have the vision and ability to really invest in BTC and the future of digital finance, or whether they will just repeat 2018 and wash out of the market."

Most other notable cryptocurrencies also dropped, with the worst drops across the board suffered by Chainlink (LINK, +0.67 %) and Cardano (ADA, +3.94 %), losing 18.9 % and 16.7 %.


Yulina Firmansyah
Yulina Firmansyah Hi, I am a wife who really loves crypto and blockchain technology, I am a writer for this blog.

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