A number of factors have been blamed for the price drop, including a crowded futures market and active sales of small and medium-sized whales. Outside of cryptocurrency trading, the most significant development was the Biden administration’s proposal to increase capital gains taxes for individuals over $1 million per year.
Data from Cointelegraph Markets and TradingView shows that a strong wave of selling drove bitcoin down in the early hours of trading on the 23rd. April broke the $50,000 support level and the price dropped to $47,500 before a few brave buyers stepped in to push it back above $49,000.
4 hour chart BTC/USDT. Source: TradingView
A move below $50,000 represents a 25% drop from the recent all-time high and bitcoin is now trading at levels not seen since early March.
Bitcoin inflows to exchanges before the fall
Asked about yesterday’s price action, Mike Spruill, managing partner and chief investment officer at S2F Capital, said the pullback looked like an attempt to keep the price below $50,000, where a significant number of in-the-money puts expire.
Spill noted that the net bearish inflow of BTC transfers on the exchanges was the likely catalyst that pushed us to the next level of intra-chain support around $47,500, pointing out that most of the coins that moved on intra-chain support during this recent sell-off were recently acquired coins, not coins from long-term holders.
Net transfer of bitcoins to/from an exchange. Source: Glassnode, S2F Capital
According to Elijah Le Rest, partner at digital asset management firm ExoAlpha, holding on to the current price level will confirm the trend of institutional investors accumulating at or below $50,000, leaving room for bitcoin to grow in the coming weeks/months.
Should the price fall further, Le Rest identified $43,000 as the next strong support level, highlighting the fact that altcoins really started to flourish when BTC traded in this area in February.
Rest said a return to this level could cause a serious slowdown in the altcoin market as they would lose all their recent gains, which could push bitcoin’s dominance back above 60%.
The rest said:
In any case, this type of market exit is very useful because it helps market participants to reduce their leverage and lays the groundwork for more stable growth.
Traders rush to exit
To better understand the rapid drop in the bitcoin price, Ben Lilly, co-founder of Jarvis Labs, gave an analogy of traders acting like passengers on a boat to describe what happened as spontaneous timing.
When the boat starts to lean over, some people lean over first. The more he bows, the more people bow. Then bam, it’s a tip….
Lilly mentioned several ways traders are taking advantage of the downturn, including selling the altcoin euphoria and profiting from futures trading. He also pointed out that in these cases the capital is used to make the house smaller instead of buying it.
To illustrate how quickly the market took off and how much it surprised even institutional traders, blockchain analytics company Whalemap posted the following tweet highlighting the importance of the $55,000 limit.
55k should be the lower limit. 263k Bitcoins flowed into the Whale’s portfolios at this price. This could become a problem for BTC in the future. But let’s see what happens. We are currently in support pic.twitter.com/Ooo20xlYzq
– Whale Map (@whale_map) April 23, 2021
What analysts think about buying BTC below $50,000 is what Whalemap published and said in the chart below:
The hourly losses are greater than the gains. Historically, this has been a good buying opportunity.Bitcoin Moving Profit and Loss (MPL). Source: Mapping whales
The market is now anxiously awaiting the next big move in the bitcoin price to determine if this is simply a delayed correction leading to a continuation of the bull market, or the opening salvo of the next bear market cycle.
Collapse of the Altcoin Price
The fall of Bitcoin hit the altcoin market particularly hard, resulting in double-digit losses for most of the top 100 tokens.
Daily indicators for the crypto-currency market. Source : coin360
Ether (ETH), the best performing altcoin by market capitalization, has been hit and is trading more than 12% below its all-time high of $2,640 on the 22nd. April. Meanwhile, XRP and DOGE were the most popular chips in the top 10, with prices up over 20%.
Three notable exceptions to the current sell-off are Compound (COMP), Waves (WAVES) and Helium (HNT), which have weathered the sell-off to post gains of 13%, 9% and 8%, respectively, at the time of writing.
The total market capitalization of cryptocurrencies is currently $1.862 trillion, and bitcoin dominates with 50.7%.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph.com. Every investment and every transaction involves risk. You should do your own research before making a decision.
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