- The fall in Bitcoin’s price wiped out leveraged positions worth more than $900 million.
- Implied volatility doubled, but market participants saw a buying opportunity.
The cryptocurrency market witnessed a tumultuous turn of events as a leading digital asset Bitcoin [BTC] faced a sharp decline. This was followed by a fall in the value of BTC to around $26,000, marking a significant pullback from previous highs.
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BTC’s fall leaves traders in shambles
The unexpected downturn has resulted in severe liquidations for traders, who have mostly been bullish on price action in recent times. According to Coinglass, the capitulation brought in more than $900 million lever positions were liquidated in the last 24 hours.
When traders trade on cryptocurrency derivatives exchanges, they are constantly exposed to additional risks. So when the liquidation price of a trader’s position is triggered, his position is forced closed by the exchange’s risk engine.
And from the liquidation heat map, thousands of positions, especially longs, have been wiped out on several exchanges.
Source: Coinglass
One undeniable reason BTC has fallen to low levels is the increase in major sell-offs by investors. For instance, amid the chaos, Coinglass revealed that a whale sent 2,645 BTC to a Coinbase wallet. Another transferred 727 BTC to a BitStamp wallet. And so there were many more.
Typically, such actions suggest an intent to sell and a spike in the inflow of mediums of exchange. Therefore, it was inevitable not to see the BTC price fall when it did. In addition to whale action, AMBCrypto reported bearish tendencies lately, which may also have contributed to the price drop.
Selling pressure and a change in volatility
According to CryptoQuant, the demand for BTC in the US has declined. The on-chain market analytics provider has used the negative Coinbase premium as the reason for its opinion.
For context, the Coinbase Premium Index measures the difference between BTC prices on Coinbase and Binance. A positive reading of the Coinbase Premium Index indicates strong buying pressure in the spot market.
But since the metric fell, it means institutional demand was low and selling pressure had dominated the Over-The-Counter (OTC) market.
2/ American question
The sell-off was preceded by a period of low point #bitcoin demand in the US (negative Coinbase premium). pic.twitter.com/jfsOtLxWWD
— CryptoQuant.com (@cryptoquant_com) August 18, 2023
In addition, Glassnode’s data showed that the incident affected the options’ implied volatility (OIV). Often used to price options contracts, the OIV uses supply and demand to determine market strength and potential trader action.
When the OIV is 20, it is considered extremely low. Here traders can find buying opportunities. But at age 80 and older, the OIV is considered extremely high. Therefore, traders may be looking for sale opportunities at the moment.
According to Glassnode, the OIV suddenly jumped from 24% to 55%. A case like this could be a signal for traders to sell as BTC has the potential to become very unstable.
Source: Glassnode
Buy the dip?
On the other hand, it seems that the broader market is seeing the price drop as an opportunity to buy at low prices. According to Santiment social toolthe phrase “buy the dip” has been trending in searches and discussions for the past 24 hours.
After #altcoins spent the past week bleeding, #Bitcoin finally had its own implosion… and took everything #crypto away with it. Prices recover slightly, but this dip was enough for the public to evoke #buydip at the highest level since April. https://t.co/SwBU58tnqr pic.twitter.com/O65Hs0w8VM
— Santiment (@santimentfeed) August 17, 2023
Read Bitcoins [BTC] Price prediction 2023-2024
One reason why this is trending may be related to the technical condition of BTC. At the time of writing, amid increasing inconstancythe Relative Strength Index (RSI) ticked at 7.01 on the four-hour chart.
Source: TradingView
For many, such an oversold level presents a buying opportunity. But in some corners, BTC could drop to $25,000 one more time before a perfect opportunity presents itself. At press time, the coin was changing hands for $26,362, down 7.94% in the past 24 hours.
