Many factors are at play in the current cryptocurrency sell-off, from geopolitics to central banks. But the flow data shared by The Kobeissi Letter on
The market simply ran out of liquidity.
Source:
Bitcoin’s Free Fall happened in addition to three separate liquidation events over approximately 12 hours, wiping out approximately $1.3 billion in positions. Each wave pushed prices down as leveraged trades closed automatically.
When liquidity is tight, a large debt burden leaves very little room for error. Prices can drop quickly because there are not enough buyers. Once liquidations begin, they cause more selling, causing prices to fall even faster.
The behavior of the crowd reinforced this.
As sentiment turned bearish, traders simultaneously rushed for the exit. Such an answer goes far beyond what just the basics would tell you.
Beyond crypto
According to the Bull theory in just 48 hours, more than $12 trillion was wiped from global markets, with metals and stocks selling off at the same time.
Precious metals were hit the hardest, with gold down more than 16%, silver down almost 39%, and platinum and palladium also fell sharply. Stocks followed, with losses on the major US indices.
The metals had developed too far and too fast.
For example, Silver had placed nine straight green monthly candles. That’s something we’ve never seen before.
Prices attracted late buyers using leverage.
When prices turned, margin calls came and that drove sales. Exchanges then increased margin requirements, adding fuel to the fire. Traders were forced to post more collateral in falling markets, leading to even more liquidations.
A sudden shift in expectations from Federal Reserve leadership (which took away a key bullish narrative) contributed to the relaxation.
What the graphs say about the future
Source: Alpharactal
According to Alpharactal CEO Joao Wedson, Bitcoin [BTC] traded below the major moving averages for the first time since 2022. The price drops below the long-term trend lines which often mean broader phases.
Source: Alpharactal
This has been an early buying zone so far, with these phases lasting months! For more conservative investors, calculating dollar costs gradually has worked best here.
Wedson noted that capital management is key. Deploying everything at once rarely pays off in periods like these.
Instead, in previous cycles, we were told to hold back some money and slowly increase exposure. This is especially true when there is a lot of fear and most people expect the situation to get worse.
Final thoughts
- Bitcoin’s drop to $78,000 was caused by liquidations and low liquidity.
- With BTC below the major MAs, volatility will continue for a while.