Markets

The real reason behind the Bitcoin price crash last week

Last week’s bitcoin price crash sent shockwaves through the cryptocurrency market, leaving investors and traders scrambling to make sense of the sudden drop. Among the various factors that contributed to this collapse, the awakening of sleeping whales played an important role.

So what is the effect of these long dormant whales, and what are the other factors behind the recent Bitcoin price crash?

Crypto Market Overview

The cryptocurrency market is notoriously volatile, with prices often experiencing wild swings in short timeframes.

The decentralized nature of cryptocurrencies such as bitcoin makes them particularly sensitive to external factors such as regulatory announcements, market sentiment, and global economic events. As a result, it is not uncommon for a sudden drop in prices.

Despite its growth in recent years, the cryptocurrency market is still relatively young and less mature compared to traditional financial markets. This immaturity can contribute to increased volatility.

Thus, new investors and traders become more susceptible to market manipulation and emotional decision making.

The factors behind the Bitcoin price crash

The role of margin trading

Margin trading has been an important factor in intensifying the impact of price movements in the cryptocurrency market. It enables traders to borrow money to trade larger positions.

When the market turns against their positions, these traders may be forced to sell their assets to cover their losses, amplifying the price fluctuations even further. It is likely that the recent Bitcoin crash was influenced in part by a series of margin calls and liquidations.

In fact, an astonishing $160 million worth of long positions were wiped out in less than an hour, mainly affecting Ethereum traders.

Coinglass data reveals that liquidations at that hour amounted to $164 million. With 98% leveraged buy positions, only $4 million came from short sellers, leaving the bullish traders bearing the majority of the losses.

Cryptocurrency filter. source: Coinglass

Most of the liquidations were linked to ETH positions during that hour, which represented about $36 million. Bitcoin followed closely with around $27.6 million, followed by DOGE and XRP.

This widespread liquidation wave highlights how margin trading can amplify the consequences of market shifts and contribute to significant price drops, such as the recent Bitcoin crash.

Regulatory concerns

The possibility of increased regulatory scrutiny has also played a role in the recent Bitcoin price crash. Regulatory actions, such as tightening restrictions on cryptocurrency exchanges or banning certain activities, can create uncertainty and lead to panic selling among investors.

Last week’s crash coincided with rumors of possible regulatory changes in key markets, which may have contributed to the downturn.

For example, the Biden administration’s chief of communications has been instructed to stay away from crypto and technology companies he previously worked with.

President Joe Biden’s communications director, Ben LaBolt, is not allowed to interact with his former crypto clients. In the past, LaBolt has provided communications services to Uniswap and Andreessen Horowitz, a venture capital firm focused on digital technology.

In addition, Coinbase CEO Brian Armstrong called on Congress to intervene in the Securities and Exchange Commission (SEC) approach to regulating cryptocurrencies.

Coinbase CEO Brian Armstrong in Washington, DC
Coinbase CEO Brian Armstrong in Washington, D.C. Source: Brian Armstrong

On April 21st tweetArmstrong emphasized the importance of regulators establishing clear policies before they are implemented. Instead of going into action without having well-defined rules in place. He said lawmakers may need to rein in the SEC to prevent the country’s cryptocurrency sector from being left behind.

Armstrong’s tweet underscores the need for a more balanced regulatory approach to ensure the continued growth and development of the cryptocurrency market.

Uncertainty about potential regulatory changes can contribute to market volatility and crashes, such as the recent Bitcoin price drop.

Market manipulation

Market manipulation is another factor that may have contributed to the recent Bitcoin price crash. Manipulative practices, such as “pump and dump” schemes and coordinated sell-offs, can lead to sudden price movements in the cryptocurrency market.

While it is difficult to definitively link any particular case of market manipulation to the recent crash, there is still a possibility that must be considered.

The recent Bitcoin sale has raised questions about potential market manipulation, specifically regarding the spot sale on Binance. Detailed analysis of the available data reveals insights into the events that unfolded during the sale and helps address these concerns.

The sale started at 8:09:31 AM UTC, with a record sale volume of 113 BTC on Binance. Comparing it to Bitfinex and Coinbase, a huge spike in spot orders over 0.5 BTC was seen on Binance. The subsequent decline in prices occurred when volume decreased.

Roughly 86.2 BTC sell orders in just eight seconds sent the price down from $29,860 to $29,730.

BTC selling volume on Binance Bitcoin price crash
BTC selling volume on Binance. source: Kaiko

Interestingly, Binance’s BTC-USDT 1% Depth of Supply saw a significant drop during the sell-off. In just one minute, as the sell-off began, it dropped by a third, and within two minutes, it fell from 600 to 240 bitcoins.

Analysis of data from other exchanges indicates that the drop originated on Binance, where someone sold a large positional position.

These findings highlight the potential impact individual or group traders can have on the cryptocurrency market. Especially when large orders are placed in low liquidity conditions.

It is essential that investors are aware of the potential for market manipulation and take it into account when making investment decisions.

The effect of idle whales

One of the primary factors that played a role in the recent Bitcoin price crash is the awakening of the dormant whales. These are large holders of bitcoin who have not been active in the market for a long time.

Three whales holding a total of 8,199 BTC ($225 million) have become active after being dormant for years.

More importantly, a giant whale holding 79,957 BTC ($2.19 billion) has woken up after 12 years of dormancy. The price of bitcoin when this whale received it was only $0.93.

Dormant bitcoin addresses
Dormant bitcoin addresses. source: Pisces alert

The resurgence of these idle whales contributed to the sudden drop in the price of Bitcoin. Large sell orders can greatly affect the market.

Effects of the Bitcoin price crash

Long term effects on bitcoin

While the collapse of the Bitcoin price last week was undoubtedly a concern for investors, it is necessary to consider the broader context.

Historically, Bitcoin has experienced many significant price drops, only to recover and reach new highs over time. As such, it is crucial not to overreact to short-term market fluctuations and to maintain a long-term perspective on your investments.

Implications for other cryptocurrencies

The recent Bitcoin price crash has had a ripple effect on other cryptocurrencies, as the market tends to move in tandem.

This highlights the importance of diversification and risk management in your cryptocurrency portfolio, as investing in only one cryptocurrency can leave you more vulnerable to market volatility.

How Investors Can Protect Against Bitcoin’s Price Drop

diversification

Diversification is one of the best ways for investors to protect their crypto investments.

By distributing investments across multiple cryptocurrencies and other assets, investors can minimize the impact of any one asset’s price fluctuations on their overall portfolio.

Risk management strategies

In addition to diversification, the use of risk management strategies can help protect cryptocurrency investments. This may include placing stop-loss orders, using dollar-cost averaging, and investing only what one can afford to lose.

By managing risk effectively, investors can better face market fluctuations and protect their investments from major losses.

stay informed

Finally, staying up to date with the latest news and developments in the cryptocurrency space is crucial to protecting investments.

By keeping abreast of regulatory changes, market trends, and potential risks, investors can make more informed decisions and respond proactively to market events.

Disclaimer

Following the Trust Project’s guidelines, this featured article features opinions and perspectives from industry or individual experts. BeInCrypto is dedicated to transparent reporting, but the opinions expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should verify information independently and consult with a professional before making decisions based on this content.

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