It’s certainly been a crazy week for bitcoin. The currency – which was trading for about $56,000 per unit during the early portion of the week – later fell to about $47,000, thereby losing roughly $9,000 from its price. Since then, it has spiked back to $49,000 at the time of writing, gaining $2,000. However, it still isn’t anywhere near where it was previously, and data suggests that many investors and traders as of late have been selling their coins for a profit and causing the sudden dip for BTC.
The Bitcoin Drop Explained
As we have discussed before, whenever large amounts of crypto holders sell their stashes, they’re likely to cause massive dips in the price of whatever digital asset is in question. The market cannot handle that many trades and losses at once. As a result, a correction often occurs, and the price will sink.
This is what many analysts and industry experts say occurred. In addition, it appears that many bitcoin futures contracts expired, which may have also led to panic and further selling. Glen Goodman – a crypto trader and author – explained in a recent interview:
The bitcoin market was like a tinderbox waiting for a spark. It didn’t cause an immediate crash, but it sowed a heavy fear, uncertainty and doubt (FUD) seed that grew into a selling panic. Traders had borrowed huge sums of money to buy bitcoin futures contracts, betting that the bitcoin price would continue to go up.
It is estimated that on Monday, as much as $1.6 billion worth of BTC futures contracts came to their end. This likely caused many people to experience heavy concern, and the market is enduring a bit of a struggle as a result.
Goodman further states that many of the individuals that wound up selling were initially people that were going “long” on bitcoin futures and assuming that further price spikes would be constant. This caused interest rates to reach new peaks on digital exchanges. He said:
Their interest payments on that borrowing skyrocketed. On Saturday, the annual rate reached 144 percent per year on the largest crypto exchange Binance. Clearly that is unsustainable, so the market was ready for a spark to tank the price and blow up the trading accounts of those who’d borrowed too much. That way, the interest rate on borrowing could return to normal.
Will It Be a While Before It Spikes?
Many analysts are now of the belief that bitcoin will continue to remain in the lower levels for a while, and that the currency isn’t likely to experience any further surges in the coming weeks. Bendik Norheim Schei – head of research at Arcane Research – mentioned in a statement:
I would not be surprised if we range for a while. Many got punished hard this week and the market may need some time to recover.