What is the usual reaction of a crypto trader when an asset suddenly drops a two-digit percentage in a very short period? Who sold their bags today? Retail traders usually point to smart money or big whales whenever an unexpected move occurs. The Bitcoin price dropped from the $29,000 range to the $25,000 range in just one day. This prompted the community to ask what had happened.
Let us check if there is really somebody who dumped their BTC and initiated a cascading drop in crypto prices, or if there is something else at play here.
Let us look at Bitcoin Chart First
At the time of writing Bitcoin has rebounded from $25,000. If we are going to look closely, this level has rejected BTC’s upward movement twice. Once it was broken, the number one crypto asset was able to get to the $30,000 level. However, to validate an uptrend, assets usually try to test the previous resistance and check if it will serve as support. The first test happened in mid-June and it was successful. Today, that support is being tested again.
But before the downtrend started, Bitcoin was in boring sideways motion. The price movement was so tight, that the daily change was about one percent. But what changed?
SpaceX is Not at Fault for the Bitcoin Dump
Some think this was triggered by SpaceX, Elon Musk’s space exploration company, selling its BTC stash. However, there is no evidence of this at the time of writing.
Another potential news that might have led traders to set up positions is the impending decision on the Grayscale lawsuit against the Securities and Exchange Commission (SEC).
According to Lewis Harland from Decentral Park Capital Trader, “Potential Grayscale decision tomorrow. We’ve seen BTC OI ramp up in position, with a bias to shorts… “The break below $28,500 led to material volumes of longs being liquidated. This has been combined with spot selling ahead of the date (likely anticipating further delays).”
A delay in the decision is seen as negative, so traders have begun stacking up short or sell positions. When the price started to fall, traders had to sell their long positions to avoid getting liquidated. This will increase the selling pressure, which will trigger more liquidations, which will dump the prices further.
Going back to the BTC chart above, the cascading selloff was stopped by large buy orders on the $25,000 level. This is evident in the quick rebound on shorter time frames.
Events Outside the Crypto Space
A lot of crypto enthusiasts look at the BTC and altcoin charts regularly. However, a lot would not bother with what is happening with the traditional market. This might prove to be a handicap since Bitcoin is also affected by most of the factors affecting stocks and other markets.
The DXY has been moving up for a few weeks now. The DXY is the index of the value of the US dollar relative to a basket of foreign currencies. Without going into too much detail, it is always thought that the DXY has an inverse correlation with the stock. A strong DXY is bad for stocks and also for other risk assets like BTC. The S&P 500 has been going lower for 3 weeks, while the DXY is trending up.
Evergrande, one of the largest Chinese property developers, has filed for Chapter 15 Bankruptcy. Its collapse could trigger a domino effect on Chinese banks, companies, and investors who have exposure to Evergrande’s debt. This will affect China’s economy, which is the largest in the world. This will also have a spillover effect on the rest of the world since China is a major trading partner for a lot of countries.
Who or What Triggered the Bitcoin Dump?
There is no straight answer. If we look at the charts, BTC has just retested support which could be seen as bullish for the long term. However, the charts don’t give the whole picture. We also have to consider all the news that is happening in the crypto space and the traditional market.
We also forget that trading is a player versus player game, or probably trader versus trader is the better term. Traders with the right resources will try to sway the market to benefit them, even if it means liquidating others. They are not being cruel; it is just part of the game. The winner takes the spoils.
Those invested in crypto should also look at what is happening inside and outside of the industry. Tracking the US dollar index and the stock market will give a clue about what Bitcoin and other crypto assets will do. Announcements from the SEC or crypto court rulings will usually be followed by volatile price movements. News of an impending economic collapse will also affect crypto since investors tend to flee from risker assets, like Bitcoin.
Instead of asking who dumped an asset, better ask what is the reason behind it. This will serve as a lesson on what to do next time. If you believe that Bitcoin is the future of money, then why even bother with the ups and lows? Why not just say thank you for the opportunity to buy at lower prices?
Charts from TradingView
