30.11.2021

What caused the sharp drop in the price of bitcoin this week?

Kraken was experiencing connectivity issues with accounts and mobile devices, as well as problems delivering messages to email. Gemini also had problems with the trading platform, which it quickly fixed.

The beginning of this week was not easy for the cryptoindustry – the cost of major cryptocurrencies fell by 15-20%, and the exchanges were experiencing difficulties in their work.

A possible reason for the fall lies in the overestimated expectations of market participants and a large volume of margin positions.

The total volume of liquidations in the last 24 hours exceeds $ 3.75 billion.

The last days have been hectic for many crypto traders as the leading cryptocurrencies have lost a significant portion of their value. Bitcoin lost more than $ 10,000 in a matter of hours, which at the moment was about 20%.

Altcoins showed an even stronger fall:

The storm has not spared crypto-exchanges either. Coinbase, the largest marketplace in the United States, posted a performance warning on its website.

It seems that most of the cryptocurrency traders were also not ready for this outcome. The market seemed calm, the news background was favorable:

  • The popularity of NFT is growing;
  • El Salvador accepted bitcoin as the country’s legal tender;
  • The desire to legalize cryptocurrencies was announced in Panama.
Why did the prices of all cryptocurrencies fall?

“That’s all. Such large-scale stories often lead to an overestimation of the market. It looks like it was this time too, ” Arcane Research analyst Vetle Lunde told Decrypt.

The most likely reason for the fall lies precisely in the optimistic mood of traders. From July 4, when El Salvador’s President Nayyib Bukele introduced a bill giving bitcoin legal tender status, to the law’s entry into force on September 7, bitcoin has risen in value from $ 37,000 to $ 53,000 in just three months. However, the moment of official recognition of BTC actually became the moment of collapse.

In fact, this behavior of prices is not uncommon, as many traders adhere to the rule of “buy on hearsay, sell on facts.” That is, traders and investors bought cryptocurrencies amid expectations about the entry into force of the Bitcoin bill, and after the release of the official news, many simply began to close their long positions, fixing profits. But this was only the beginning of the future fall.

The decline in prices was exacerbated by the too high volume of margin positions, or more precisely, by their liquidations. Based on the good news background and the general bullish mood in the markets, many traders opened positions with leverage, that is, they used borrowed funds to buy cryptocurrencies. This was potentially a big profit on the upside, but when the price fell, it caused an avalanche of liquidations of long margin positions, which led to a snowball effect and provoked more liquidations. As a result, cryptocurrency prices plummeted.

One of the options for the development of events was published by the analyst Willy Woo on his Twitter:

“The day began without much risk. Someone sold BTC. Sales are average. Liquidation of margin positions begins. $ 1.1 billion in liquidation of Bitcoin positions. The market does not support the decline. Purchases begin on the stock exchanges. “

For altcoins, the situation was similar. The good news background and the renewal of historical highs with many coins provoked traders to open long-leveraged margin positions. They became the catalyst for a precipitous decline.

According to the Bybt website, the total volume of liquidations in the last 24 hours is $ 3.75 billion, of which:

  • $ 1.43 billion – BTC;
  • $ 952.5 million – ETH;
  • $ 227.93 million – XRP;
  • $ 82.6 million – FIL;
  • $ 79.73 million – DOGE.

The strongest was Solana, which for a short period of time even surpassed XRP in terms of capitalization, taking 6th place. But now the coin is again on the 7th line, and the price change over the last 24 hours does not stand out much compared to other coins from the top 10.

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