According to an analyst, Bitcoin (BTC) would have plummeted by about $ 9,000 in hours due to a mass liquidation of overly leveraged traders.
Yesterday, in a series of tweets, Willy Woo tried to analyze the causes of the decline in BTC / USD to lows of $ 42,800.
Woo: the fault of the margin borrowers and the open interest
Among the various speculations, analogies abound with the March 2020 decline triggered by the pandemic crisis, but “Tuesday’s event shows big differences”confirms Woo.
“Leverage positions have been liquidated, but investor buying has intensified”, he has summary.
“BTC’s flash crashes are caused by deleveraging. The COVID crash was similar in that derivatives overreacted, but back then the move was supported by investors. This however is completely divergent and a mystery. These are cheap coins. “
Woo later suspected the decline was a result of margin lending and open interest. In a classic domino effect, the positions closed triggering a “cascade” of liquidations, with disastrous consequences for the spot price:
“Open day with risk-off in equities. Some selling of BTC. Average levels of fundamental inflows (selling). Follows stop hunt / liquidity collapse. 1.1 billion dollars of BTC liquidations. Movement overall not supported by fundamentals of the on-chain investors. Exchanges are now experiencing outflows (buying). “
“I think I found the culprit. Even though open interest was high, spot margin lending was also peaking before the crash. Both markets, combined, created enough deleveraging power to bring the price down. (Spot market margin longs have been liquidated as much as derivatives.) “
“Typo. Open interest was NOT high, it was within normal limits.”
Typo. Open Interest was NOT crazy high, it was within normal bounds.
— Willy Woo (@woonomic) September 8, 2021
While circumstances may be complicated for the average user, the strength of Bitcoin’s bounce and continued investor buy-ins suggest that HODLers were not affected by the event.
According to Whalemap, an on-chain monitoring resource, the vast majority of the selling pressure has come from large investors who have recently entered the market.
“So yesterday we had a sell-off.“The movement has certainly been violent, with large volumes of Bitcoin being sold on spot markets. Some analysts have tweeted sharing a chart:
“But who was selling? Not the HODLers. Mostly whale, and indeed those who have only recently bought BTC.
William Clemente, fellow analyst, highlighted a welcome recovery of derivatives markets on Tuesday, concluding:
“Strengthening Investor Activity + Leveraged Speculators Wiped Out = Healthy Cleanup.”
Risk Disclosure: The articles and articles on Arover.net do not constitute investment advice. Bitcoin and cryptocurrencies are high-risk assets, and you should do your due diligence and do your own research before investing in these currencies.