Why is Bitcoin price falling?

The notable decline in the value of Bitcoin (BTC), which briefly fell below $64,000, has had significant financial implications for investors speculating about a price increase. This recession has resulted in over $440 million in liquidations among cryptocurrency futures traders. In this context, some investors are now adjusting their expectations, predicting that Bitcoin could fall further into the $55,000 range in the near term.

These individuals, especially those who had made long-term bets on Bitcoin, suffered significant losses totaling $130 million. Moreover, other major cryptocurrencies were not able to escape this slump. Ethereum (ETH), Solana (SOL), and Dogecoin (DOGE) accounted for a total of $120 million in long position liquidation, according to information provided by Coinglass.

Analysis of liquidation distribution across trading platforms showed that Binance was the most affected, with exchange liquidations amounting to $212 million. Following this, OKX experienced $170 million in liquidations, highlighting the far-reaching impact market movements have on traders across various platforms. Liquidation, a process in which exchanges force traders to close their leveraged positions due to initial margin losses, has contributed to this downturn. This action is usually taken when a trader does not have enough capital to sustain a trade due to being unable to meet the margin required to maintain a leveraged position.

Major cryptocurrencies plunged in the past day, with some tokens down as much as 11%, according to data from CoinGecko. Specifically, ADA for Ethereum (ETH), Solana (SOL), and Cardano decreased by up to 8%. CoinDesk20, which tracks the performance of various major cryptocurrencies excluding stablecoins, also recorded an 8% decline.

Amid these market conditions, some traders have expressed expectations that Bitcoin may fall to around $55,000 in the coming weeks, despite maintaining an optimistic outlook for the long term.

In terms of individual cryptocurrency performance surpassing Bitcoin, Ethereum (ETH), the second largest cryptocurrency by market capitalization, fell by 8% to $3,250. This is a notable decline compared to last week’s trading price of over $4,000. Altcoins or smaller cryptocurrencies have also experienced declines. Cardano (ADA) fell 6% and Polygon fell 9%. The downturn was not limited to these larger tokens. Meme-inspired cryptocurrencies also fell, with Dogecoin (DOGE) down 9% and Shiba Inu (SHIB) losing 7% of its value.

The value of Bitcoin began to fall late Monday in the U.S. as withdrawals from Grayscale’s Bitcoin Trust (GBTC) surged, surpassing an all-time high of $640 million. While inflows into other financial products were just under $500 million, the overall market recorded a net loss of $150 million on the day.

Bitcoin ETF Flow Chart (US$m)

Bitcoin (BTC) is currently trading above $65,000, having lost 4% in value. This downturn coincides with GBTC stock selling reaching unprecedented levels.

According to BitMEX’s research, the amount outflow from GBTC on March 18 was noticeably high, totaling $643 million. Additional analysis by investment firm Farside found that, overall, there were net withdrawals from Bitcoin ETFs worth $154 million. Among these ETFs, the iShares Bitcoin ETF (IBIT) recorded the highest inflows at $451.5 million, while the other products collectively received about $36.7 million.

Analysts at Bespoke Investment Group highlighted a significant event on BitMex where the price of Bitcoin plummeted to $8,900 overnight. The decline was caused by a large sell order worth $55.5 million. Considering that Bitcoin’s market capitalization exceeds $1 trillion, such significant price fluctuations due to relatively small sell orders raise concerns about market liquidity, analysts noted.

Despite this incident, the sentiments of many in the market about Bitcoin’s future prospects remain positive. A major factor contributing to this optimism is the recent approval of a spot Bitcoin exchange-traded fund (ETF) by US regulators in January. The approval sparked renewed interest in cryptocurrencies, attracting more investments. According to CoinShares, digital asset investment products saw record inflows of $2.9 billion last week alone, bringing the total for the year to $13.2 billion.

Since the introduction of the Bitcoin Exchange Traded Fund (ETF) earlier this year, there have been significant withdrawals from GBTC, which recently converted to an ETF. This trend is primarily due to relatively high fees, contributing to downward pressure on the Bitcoin price. Based on market sentiment, it is clear that another source of selling pressure on Bitcoin is coming from short-term holders taking advantage of recent price increases to lock in profits.

The on-chain analytics firm shared a chart showing the short-term holder SOPR ratio for Bitcoin (BTC), indicating a significant increase in profit-taking among investors who have held BTC for less than five months. This movement is explained by CryptoQuant’s notable events that occur once every few years. However, it is important to note that this alone is not a reliable signal of the peak of a bull market. This view is influenced by factors such as increasing institutional and retail investor participation in Bitcoin, particularly through the introduction of spot ETFs.

Current price movements suggest a short-term correction within the cryptocurrency market, but this is not material. Profit seeking by long-term holders may be contributing to this downward trend. Variable liquidity across various trading platforms is also serving to inject volatility into Bitcoin. There have been instances of flash crashes where asset prices temporarily fall well below their normal market value. These flash crashes are usually caused by automated trading algorithms, liquidity mismatches, or imbalances between buyers and sellers.

Liquidity plays an important role in markets, allowing assets to be bought and sold quickly without causing significant price fluctuations. Cryptocurrency liquidity has suffered a severe decline since the collapse of the FTX exchange in late 2022. However, the recent surge in digital asset prices has helped bring Bitcoin’s market depth, an important indicator of liquidity, back to pre-FTX levels, analysts at cryptocurrency data provider Kaiko noted in a report on Monday.

Despite these improvements, it is important to recognize that not all trading platforms offer the same level of liquidity. During periods of notable change in Bitcoin, particularly with the introduction of new physical Bitcoin exchange-traded funds (ETFs), changes in liquidity are evident across the market. This difference in liquidity could contribute to volatile trading conditions and potentially lead to more sudden price crashes if Bitcoin experiences further selling pressure.

Bitcoin is also ahead of a significant event known as the halving, which is expected to occur next month. This event will reduce the number of new tokens created and released to the market, effectively strengthening the supply at a time of increasing demand for Bitcoin. This supply shortage is expected to provide additional support to Bitcoin price levels.

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