Sharp Change in BTC/USD Price: Causes and Consequences


On Monday morning, the price of bitcoin fell sharply. As the chart shows, the BTC/USD rate fell below 42,000 on Monday during the Asian session. According to Coinglass, the decline resulted in about $400 million worth of positions being liquidated by about 100,000 traders on cryptocurrency exchanges. So far, the price has found support around the 41,200 level, where the lower border of the ascending channel lies (shown in blue).

What are the reasons for such a sharp decline? From a fundamental point of view, there are no triggers with the media associated with, for example, statements by officials. What then?

First of all, the idea comes with low liquidity in the financial markets at the beginning of Monday in the Asian session. A recent example is the gold market, when the price of the metal jumped at the opening of trading to $2,130, but then quickly fell to $2,060. By the way, we wrote on Tuesday that the bears may try to push the price of gold below the psychological level of $2,000. The scenario is still coming true.

What will happen to bitcoin? The graph shows that:
→ the price was within consolidation for some time (shown in green);
→ On December 8, the year’s maximum was updated, which in fact turned out to be a trap, a false bullish breakout of the consolidation zone (a bearish sign);
→ this morning, there was a bearish breakdown of the consolidation zone.

After 8 weeks of gains, we can assume that the market is overbought and today's decline is an overdue correction after a rally of more than 70% from the September lows.

But corrections, as a rule, are characterized by smoother declines with decreasing volumes. And if we analyze the nature of the decline on Monday morning, it looks more like an impulse.

Of course, given the high leverage that is applied in the poorly regulated crypto market, it is reasonable to assume that the correction took this form due to the cascading triggering of buyers’ stop losses. On the other hand, what if insiders are actively selling bitcoin, knowing that the coming week will bring a dose of negativity on the fundamental background?

One way or another, if the price of bitcoin reaches a psychological level, then analyzing the patterns on the chart will provide important information. It is possible that the price will break below the $40k level, and it will provoke an upward rebound — the nature of which will provide valuable material for reasoning about whether the current decline is an overdue correction or a bearish reversal.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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