On August 17, three significant bearish events caused the Bitcoin Price to plummet to $25,200 (₹20,66,400). Analyzing on-chain data helps to understand the reasons behind this price drop and provides insights into potential price movements in the upcoming weeks.
During the same day, Bitcoin experienced a momentary decline, marking its lowest point since the beginning of June. The downward trend was initiated by a bearish trade valued at $373 million (₹31 Billion) from Elon Musk's SpaceX. Subsequently, two additional events occurred, seemingly unrelated, yet contributing to the overall bearish sentiment.
Why Did Bitcoin Price Crash?
The BTC price crash on August 17 can be attributed to three main factors. First and foremost, a news report from the Wall Street Journal disclosed that Elon Musk’s SpaceX had devalued its Bitcoin (BTC) holdings by $373 million (₹31 Billion) before completely divesting from it. Shortly after this report surfaced, the BTC price experienced instability, slipping below the critical support level of $27,500 (₹22,55,200).
Additionally, the shockwaves generated by the news of Evergrande, a Chinese real-estate giant, filing for bankruptcy, may have also played a role in the rapid decline of Bitcoin. The convergence of these two significant bearish events then set off the third factor—a wave of extensive liquidations throughout the cryptocurrency markets.
Coinglass, a blockchain analytics platform, reported that over $834 million (₹69.3 Billion) worth of long crypto positions were liquidated within a span of 24 hours. The provided graph illustrates that Bitcoin traders bore the brunt of this, with more than $499 million (₹41.4 Billion) worth of long BTC positions being wiped out.
In the realm of crypto margin trading, a liquidation event occurs when the value of an asset drops substantially, leading to losses that surpass the trader's collateral or "margin."
The chart above illustrates that investors who had taken positive positions on BTC are now facing losses exceeding $499 million (₹41.4 Billion) in the past day. When traders' positions are liquidated due to margin calls, they are compelled to rapidly sell their assets. This influx of sell orders can result in an oversupply of Bitcoin, potentially causing further price drops in the upcoming days.
US Whales Buying the Bitcoin Price Dip
While grappling with losses in the futures markets, crypto traders observed a crucial on-chain data point indicating that US institutional investors were capitalizing on the price dip.
As per reports, Binance holds significant dominance in the retail spot market, whereas Coinbase Pro experiences substantial influence from US-based institutional and high-net-worth traders. Therefore, positive values of the Premium Index suggest a decrease in buying pressure from US investors on Coinbase.
The provided graph illustrates that, for the first time in August, the Coinbase Premium Index has shifted to positive values. This likely implies that US investors have utilized the price drop as an opportunity to acquire more BTC.
This positive trend in the Coinbase Premium Index might bolster the confidence of retail investors in the upcoming weeks. To sum up, factors such as the sell-off by Elon Musk's SpaceX, repercussions from Evergrande's bankruptcy filing, and substantial Bitcoin liquidations totaling $499 million (₹41.4 Billion) have contributed to the significant drop in Bitcoin price.
Nonetheless, the increasing demand from US institutional investors could serve as a lifeline for heavily impacted traders and potentially initiate a mild recovery.
Bitcoin Price Future Outlook
BTC might experience a moderate rebound due to well-off institutional companies and traders from the US who aim to prevent additional sell-offs. The concept is further reinforced by the In/Out of Money Around Price (IOMAP) data, which provides insight into the distribution of purchase prices among current holders of Shiba Inu.
As displayed in the above image, about 1.21 million addresses acquired approximately 670,000 BTC with an average buying price of $28,000 (₹22,96,000). If they predict a continued downward trend, they have the potential to vend their holdings, initiating another setback. Nonetheless, if the challenges faced by the entire industry diminish, there's a possibility for BTC to attain the $29,000 (₹23,78,000) mark.
August 2023 was a challenging month for Bitcoin, marked by a significant price drop. Elon Musk's SpaceX divestment, Evergrande's bankruptcy, and extensive crypto liquidations collectively contributed to the downward spiral. The resultant impact on traders and market sentiment was profound, leading to questions about Bitcoin's immediate future.
Amidst this turbulence, the positive shift in the Coinbase Premium Index hinted at US institutional investors capitalizing on the dip, possibly driving a measured recovery. The evolving interplay between external dynamics and institutional actions holds the key to Bitcoin's uncertain journey ahead.
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