Bitcoin Price Drops After All-Time High–Here’s Why
Bitcoin hits a new record high but immediately makes a downturn. Here is why.
Key Takeaways
- Bitcoin hits new all-time high, but a potential correction could start.
- A decrease in exchange reserves indicates no fundamental sell-off reason.
- Leveraged positions drive a, leading to sharp decline.
The price of Bitcoin hit a new all-time high, climbing above $69,000 on March 5. It was only slightly higher than the previous one in November 2021 and, afterwards, it fell 14%. Since the price increased by 80% from its January low and was in a major uptrend from November 2022, was this the first signal of the starting correction?
To find out, we need to see who sold and why. Looking at Bitcoin on-chain data and cross-referencing with the price chart could uncover some clues about the future of Bitcoin’s movement.
Bitcoin Fundamentals
First, let’s look at the Bitcoin Exchange reserves on CryptoQuant , which can offer an insight into a fundamental picture. Usually, an increase in this metric is interpreted as an increase in seller pressure. Investors deposit Bitcoin from their private wallets onto exchanges, selling it to secure profit.
Looking at this chart, however, we can see the opposite. The number of Bitcoin held on exchanges has drastically diminished, from a high of over two million on March 5 to a low of 1,957,678 on March 5. It did make a minor increase before the all-time high and after the first fall, but March 6’s low is a new all-time low. From this metric alone, we can conclude that there wasn’t a fundamental reason behind the sell-off.
The Derivatives Market
This draws our attention to the derivatives market. The Open interest peaked at 16.6 billion outstanding contracts, 100 million higher than when Bitcoin hit its previous all-time high in November 2021. This could mean that the leverage positions largely drove the price rise.
Liquidations
Further looking at liquidations on CoinGlass , we can spot a correlation between the number of liquidated positions and price fluctuations. A large number of short positions were liquidated on February 28 before Bitcoin rose to its new all-time high.
Conversely, we saw a significant spike in long positions liquidated on March 5, with a total of $198 million in longs compared to $60 million in short positions. To clarify, when a trader enters a long position, he sets a stop-loss at a lower price, triggered by the price decrease, and forces them to become sellers.
This cascading effect created by market one-sidedness usually leads to short or long squeezes. In this case, it was a a long squeeze. It has to start somewhere, and it did for fundamental reasons – investors and traders placed a larger amount of sell orders, around $70,000 on Binance. A cluster formed, with more 500 Bitcoins at $70,000 and nearly 65 BTC at $69,900.
Buyers didn’t have the strength to overcome this sell wall, causing the price to drop and forcing long-positioned traders to become sellers, further adding to selling pressure. Worth noting is that this is plain traders’ logic, assuming profit taking at the previous all-time high and placing orders slightly above.
Bitcoin Price Analysis
Bitcoin’s price saw a rise of 80% from $38,860 on January 23 to a new all-time high by March 5. The examination of its price pattern since late January shows a five-wave pattern, indicating the surge may have reached its peak. The subsequent 14% drop, supports this, confirming the trend.
The Relative Strength Index (RSI) on the daily chart, standing at 84%, indicated an overbought condition. This suggests a need for caution. Historically, corrections have often followed such rapid ascents. Continuing this pattern, Bitcoin could face a downturn of 40% or more.
Bitcoin dipped to a low of $59,200 but quickly recovered, closing at $63,790 on March 5, leaving a notable wick on the daily candlestick. By March 6, it continued its ascent, trading above $66,000.
A further decline would hint at the beginning of a more significant downward trend. Bitcoin has been on a broader uptrend since November 2022. However, with this larger uptrend likely concluding with the recent peak, we might anticipate a cooling-off period. This, as a result, could bring the price down to $44,000 or even lower.
Disclaimers
Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
