Some analysts believe that bitcoins fall yesterday was just a short-term correction in the upward trend and that bitcoin may hit a record high with a more sustainable rise as excessive leverage is eliminated.
1. Excessive leverage of bitcoin
Bitcoin has become the victim of a massive unwinding of leveraged derivatives trading on major exchanges, said Matthew Dibb, chief executive of stackfunds
As of 12:00 p.m. Thursday, nearly $2 billion in derivatives positions had been closed in the previous 24 hours, according to bybit, a data source. Among them, more than $1.6 billion worth of transactions were closed in the previous 12 hours,
The unwinding of these leveraged trades was expected, as the cost of holding a long position in the bitcoin futures market, or capital rate, has risen sharply in the past few days to a multi month high of 0.098%, a sign that the market is over leveraged or overheated.
The so-called capital rate refers to the fees that traders need to pay or charge for holding positions. Through this fee, the balance between long and short sides in the market can be achieved, so that a contract can closely follow the price of its underlying assets. For example, if the bitcoin / US dollar perpetual contract trades at a price higher than the spot price of bitcoin, and the capital rate is positive, then long traders need to pay fees to short traders to achieve the purpose of restraining long positions and encouraging short positions. vice versa.
According to the data source glassnode, as the price of bitcoin has fallen, the capital rate of bitcoin has dropped to 0.011%. This means that the excessive leverage in the bitcoin market has been squeezed out of the market.
2. Technical callback
Bitcoin has soared from $10000 to $19400 in the past seven weeks, a bit overdone on the technical chart. Although the 14 day relative strength index (RSI) has shown overbought, bitcoin has remained above the 10 day moving average throughout the rise.
Historically, asset prices rarely rise 90 degrees, because speculators tend to lock in profits regularly and push prices below the short-term moving average. In the previous bitcoin bull market, there have been several times of 20% or even greater correction.
The price drop seen today has brought cryptocurrency below the 10 day moving average, and the RSI has been readjusted to be bullish in a more friendly way. Its a healthy callback, says stackfunds Dibb.
According to the analysis of technical analysts, the price rise of regular correction is more sustainable than the extreme rise of nearly 90 degrees.
3. News stimulates the downward trend
In addition, there are some news factors to stimulate the bitcoin sell-off.
Around 8:00 Beijing time on the 26th, Brian Armstrong, co-founder of coinbase, a digital currency exchange, sent more than a dozen tweets, saying that U.S. Treasury Secretary manu chin is planning to introduce new regulations on self hosting encrypted wallets before the end of his term of office.
It is said that the new regulation, which attempts to track the owners of cryptocurrency wallets and everyone involved in the transaction, will, if implemented, suppress the core principle of the cryptocurrency spirit - that private cryptocurrencies are not harassed and tracked.
Against the backdrop of optimism and unsustainable high leverage, this [regulatory concerns] triggered the biggest one-day decline since March. It would be very pessimistic if what Armstrong said came true, analyst Kruger said. But so far, I think it is highly unlikely in the short term
In addition, the well-known cryptocurrency exchange okex announced the resumption of withdrawal business, which also magnified the downward trend of bitcoin.
On October 16, okex froze all withdrawals. Five weeks later, okex resumed its withdrawal business at 8:00 international standard time (16:00 Beijing time) on Thursday.
Most of the frozen bitcoin (on the okex platform) has risen by nearly 70% in the past five weeks, and a lot of unfulfilled profits are locked in Once these bitcoins can be exchanged, many traders will choose to exchange them for dollars or stable currencies, which will increase the momentum of selling. Sui Chung, chief executive of cfbenchmarks, a provider of CME encryption index.
When the bitcoin exchange resumed withdrawal trading at 16:00 Beijing time on Thursday, bitcoin prices had fallen to about $17600 and then to $16600 in the following hour.
Some analysts believe that yesterdays decline in bitcoin is only a short-term correction in the rising trend of bitcoin, and the macro factors that bullish bitcoin (such as the increased participation of institutions and the global central banks water release) are still intact.
Number of bitcoin holdings on global exchanges vs bitcoin prices analysts believe Thursdays sharp fall in bitcoin prices has eliminated excessive leverage. As the cost of holding long positions normalizes, bitcoin is likely to record a more sustainable rise. Source: Science and technology innovation board daily editor: Wang Xiaowu_ NF
Number of bitcoin held on global exchanges vs bitcoin price
Analysts believe the bitcoin price crash on Thursday has eliminated excessive leverage. As the cost of holding long positions normalizes, bitcoin is likely to record a more sustainable rise.