Bitcoin and the Entire Crypto Market Collapse Overnight: What Happened?

Discover the reasons behind the sudden drop in the cryptocurrency market, including Bitcoin, and the impact on long positions.

Aug 18, 2023 - 14:53
Oct 19, 2023 - 13:09
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Bitcoin and the Entire Crypto Market Collapse Overnight: What Happened?
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Last night, the entire cryptocurrency market, including Bitcoin, experienced a sudden and significant drop. Here's an analysis of what occurred:

First, there was a 2% drop, followed by a brief respite, and then a final blow that brought Bitcoin down to a low of $25,000 from $29,000 just a day before. From that low, there was a slight rebound, and the price of Bitcoin is now hovering around $26,500. Many are wondering what caused this sudden drop. Was it Elon Musk selling? Was it Evergrande's fault? Let's analyze the situation.

Anatomy of the Collapse: Examining Charts and Data

The stumble began on Wednesday, August 16, with a weak wave of selling that pushed the price below its previous average of $29,200. However, nothing seemed particularly alarming until a more intense wave of selling broke through support levels, causing the price to plummet.

During this specific moment, there was a cascade of liquidations, mainly long positions. Nearly $1 billion in long positions were liquidated, and the Open Interest contracted by $2.5 billion (23% of the total open). All the open interest accumulated from the last rise was wiped out, resulting in a significant reset.

When such dumps (or pumps) occur, people often search for news to explain why it happened. The main suspects this time are Elon Musk, who was falsely reported to have sold $373 million in Bitcoin, and the bankruptcy of Evergrande, the Chinese real estate giant, which could put significant pressure on all markets.

However, the truth is that there is no specific cause. The price collapsed simply because of hefty sales that wiped out many leveraged long positions, intensifying the dump. Searching for news to attribute causality is typical but entirely misleading.

From a fundamental perspective, nothing has changed with Bitcoin and crypto. The decline is a classic market movement typical of Bitcoin's volatility.

Next Supports and Current Price Scenarios for Bitcoin

There are now two support levels:

  • Around $26,000, the origin of the leg up that brought us above $30k.
  • The area between $24,500 and $25,250 is a significant support level for the bullish movement after March's breakout.

Losing these areas would also invert the medium-term structure to bearish, while currently, it's in balance within a large range between $25,000 and $30,000.

To return to a bullish trend, Bitcoin would need to absorb the origin of the dump at $29,450 fully. While it seems impossible, Bitcoin has taught us never to be surprised by anything.