Wednesday’s price dip was one of the biggest liquidation events in Bitcoin’s history. Whales took the opportunity and capitalized on the market dip to acquire 122,588 BTC worth $4.4 billion at the current market price of $36,500 per BTC.
Looking at historical price drawdowns, this correction has been deeper than any of those that happened in 2017 and is the largest bull market correction since the consolidation period in 2013.
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Traders trying to time the market by taking long positions as the market dropped caused the market meltdown. Every time the market went lower, traders kept stepping in with leveraged longs in an attempt to time the bottom. Data from Glassnode shows that many newer market participants panicked and decided to sell. This is because, in the 4 days leading up to the dump, exchange flows turned bearish, with exchanges having +59,313 BTC in just 4 days.
Analysis from Morgan Creek Digital’s Anthony Pompliano concluded that the Bitcoins that were sold during the market dip were from coins aged 1 week to 1 month old, suggesting that newer investors caused the current market dip. This reaction from new investors should come as no surprise because a lot of FUD (Fear, Uncertainty and Doubt) surrounding Bitcoin and cryptocurrencies, in general, came into existence in form of regulators and governments attacking the market with regulations and even outrightly banning the use of cryptocurrencies.
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During the dip, over $300 million in long positions got liquidated within 10 minutes. This massive level of liquidations was why the price drop was so rapid.
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We also experienced deep retracement in the market from its peak for the first time since March 2020. Bitcoin declined to a 61.8% retracement zone trading $33,033.80 on the 4-hour chart. When a market declines in this manner, it tends to attract buyers because the current price will be perceived as a discount.
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The individuals that did the most buying throughout the dip was entities holding 10k-100k BTC, which are perceived to be HNI’s or institutional investors. They added 122,588 BTC to their holdings in aggregate on Wednesday. Since then, exchange flows have normalized and are no longer bearish.
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Cryptocurrency hedge funds interviewed by Bloomberg have also reiterated that they were dip buyers. MVPQ Capital and ByteTree Asset Management, both based in London, along with Singapore’s Three Arrows Capital, all bought the dip. Kyle Davies, co-founder at Three Arrows Capital stated to Bloomberg, “People that were borrowing money to invest, they were wiped from the system […] Every time we see massive liquidation is a chance to buy. I wouldn’t be surprised if Bitcoin and Ethereum retrace the entire drop in a week.”
Bitcoin is currently trading at $36,500, down 18.50% over the last 7 days.