Bitcoin experienced a major price drop, falling from $65,062 to $58,053, a 10.8% drop in the past two days. Ethereum also fell significantly from $2,792 to $2,384, a drop of about 14.5%. Popular analytics platform CryptoQuant recently published five charts that aim to shed light on why the cryptocurrency market hit this sudden low.
Short-term holders are proving to be a significant obstacle contributing to the recent decline in Bitcoin price. Last week, Bitcoin price fell significantly and short-term investors were left with an average loss of 17% towards the start of the month. When the price reached its break-even point, most of these holders bought off their shares, creating significant resistance that led to the next bear market.
In addition, speculation contributed significantly to the weakening of the market structure. Since August 5, open interest in Bitcoin futures increased from $13.5 billion to $17.9 billion, representing a 31% year-on-year increase.
Nevertheless, the funding rate was consistently positive, meaning traders were willing and prepared to pay the premium for perpetual contracts, allowing them to see spot prices rise. This uncertainty led to volatility and made the market potentially more vulnerable to a downturn.
Bitcoin inflows increase selling pressure
Another reason for the decline was Bitcoin inflows into spot exchanges despite falling prices. CryptoQuant verified author IT_Tech_PL pointed out the increasing inflows could mean that users are planning selling activities shortly. This put additional pressure on an already volatile market, especially the futures contracts.
Julio Moreno, head of research at CryptoQuant, pointed out that most of these inflows came from large addresses, meaning that large market participants transferred their funds to exchanges for sale.
Due to market fluctuations, numerous bankruptcy cases occurred, especially in Ethereum and Bitcoin. Liquidations of long positions in Ethereum continued to rise to $55 million and liquidations of long positions in Bitcoin reached a maximum of $90 million since August 5. Masses of traders were locked out of the market and thus the open interest in the market dropped by $2.2 billion, dragging the already declining numbers even further down.
The overall decline was due to a number of factors, such as short-term sell-offs, speculative activities, an increase in spot inflows, and a dominant wave of liquidations. All of the above factors combined to create an unstable market situation, resulting in the steep decline in the values of Bitcoin and Ethereum.
