Bitcoin Price Plunges 10% in One Day – Analyzing Causes and Comparing with Previous BTC Crashes
Why Did the Bitcoin Price Crash? | Credit: Hammem Sarwar
Key Takeaways
- The Bitcoin (BTC) price fell to a low of $52,300 on Aug. 5.
- It was the biggest daily BTC price decline since November 2022.
- Will Bitcoin reverse quickly after this drop, or has it started a bearish trend?
Bitcoin’s meteoric rise came to an abrupt halt on July 29, as its price began to plummet, culminating in a 15% drop on Aug. 5—the largest single-day decline since November 2022.
This sudden downturn has sent shockwaves through the market, leaving traders on edge and wondering if the bull run that began in March has finally ended.
After reaching a low of $49,647, Bitcoin’s price has since bounced back to $53,150 at the time of writing, but the question on everyone’s mind remains: what triggered this crash, and what’s next for crypto’s reigning king?
Why Did the Bitcoin Price Crash?
Bitcoin’s downward spiral, which began on July 27, took a turn for the worse on Aug. 2, as the price’s decline accelerated.
Despite initial resilience, with the price still forming a higher low compared to its July 5 bottom of $53,485, the continued sell-off over the weekend and the sharp plunge on Aug. 5 pushed the price to a low of $52,300 – a level not seen since Feb. 25.
The brutal price crash has resulted in $270 million in liquidations over the past 24 hours, with long traders bearing the brunt of the losses. This scale of liquidation is eerily reminiscent of the market turmoil seen on March 5 and April 13.
What triggered this Bitcoin price crash? Market analysts point to the global stock market rout as the primary culprit.
Japan’s NIKKEI index has been particularly hard hit, posting its worst two-day decline since 1987, with a staggering 22% drop over the past three days. The European and US stock markets have also suffered significant losses, albeit less severe than their Japanese counterpart .
The S&P 500 has fallen 7% over the past three days, while the DAX has shed nearly 5%. The severity of the decline has drawn comparisons to the infamous “Black Monday” market crash, leaving investors on edge and wondering if this is a sign of a deeper market downturn.
Custom Daily Chart | Credit: Valdrin Tahiri/TradingViewAnother likely reason is the constant selling by the trading firm Jump Trading , which has sold over 17,000 Ethereum in the past 24 hours.
It is uncertain if the sell-off is due to a margin call, potentially regulatory reasons, or something else entirely.
The Ethereum selling has been so intense that the gas fees briefly increased over 600 GWEI, causing the Ethereum supply to become deflationary for the first time in months.
The pessimism in the traditional market is also visible in the behavior of large funds like Berkshire Hathaway , which sold over $60 million in shares in the last quarter, the most since 2017.
Comparing it to Previous Similar Crashes
The current decline bears a striking resemblance to the August 2023 downturn, which preceded Bitcoin’s surge to an all-time high.
A closer examination reveals similarities in the structure, duration, and magnitude of the final decline (marked by the black icon) that signaled the bottom. Furthermore, the daily Relative Strength Index (RSI) briefly dipped below 30 on both occasions (black circle), a telling sign of oversold conditions.
Following the 2023 decline, Bitcoin consolidated for several weeks before starting its remarkable run.
To gain further insights, we can draw parallels with the November 2022 decline, the largest daily drop since then.
Bitcoin’s price formed two consecutive bearish candlesticks during that period, with declines exceeding 15%. A key distinction between the two movements is that the 2022 decline occurred within a prevailing downtrend, whereas the current decline is unfolding within an uptrend.
Despite these differences, there are notable similarities between the two movements. The daily RSI decline below 30 (black circle) is a common thread, as is the presence of a catalyst exacerbating the decline. In 2022, it was the FTX crash, while the Jump Trading sell-off is influencing the current price action.
A pattern emerges when comparing the ongoing decline to the two most significant previous declines in this market cycle. In each instance, the decline was accompanied by a daily RSI drop below 30 and marked either a local or absolute bottom. Moreover, one of these instances involved a “black swan” event similar to the current one.
Bitcoin Price Prediction – What’s Next?
The daily Bitcoin price chart shows that the downward movement since the all-time high of March 14 has been locked in a descending parallel channel.
Historically, when the price touched the channel’s support trend line, it triggered a bounce (white icons), followed by an uptrend towards the resistance trend line.
This pattern held true as recently as July, with the price rebounding from the support line multiple times.
However, today’s price action has dramatically altered the landscape. The breakdown has pushed the price of BTC significantly below the support trend line, raising concerns about a potential shift in market dynamics.
With only hours until the daily close, the situation remains fluid. Nevertheless, Bitcoin would need to stage a remarkable recovery and close above $54,700 to negate the breakdown and restore the channel’s integrity.
Failure to do so could signal a more profound downturn, as the price would have officially broken out of the channel’s confines.
Still, the most likely wave count is bullish. Bitcoin will complete a W-X-Y correction (white) since the all-time high if the current low holds.
The sub-wave count in black shows an A-B-C structure for wave Y in which waves A to C had an exactly 1:1 ratio. This, however, is contingent on BTC holding the current lows and not falling further.
In the long term, the decline could still be wave four in a five-wave upward movement that started in November 2022. However, this is the last stand for the bulls, and a continued decline will put this count at risk.
If that happens, the Bitcoin market cycle top may be in, signaling the start of the bear market.
However, as it stands, a large bounce at the current level can mark the beginning of the fifth and final wave of the current market cycle, possibly tracking the price between $89,100 and $100,400.
The 1.61 external Fibonacci retracement of wave four creates the first target (black). The second target is created by giving wave five the same length as wave one (white).
It is worth reiterating that this scenario remains valid only if the BTC price does not crash further.
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