After plunging to $40,000 on Monday, the price of bitcoin then recovered to $42,000, suggesting a significant decline.
Whales were involved in the drop, according to the Coinbase Premium Gap (CPG) fall.
Traders have been wary of taking on high-leverage risks in the derivatives market since early December.
Monday saw the first price drop in Bitcoin in almost three weeks. Before the SEC authorizes a spot Bitcoin ETF in January 2024, the market was anticipating a positive continuation. But on Monday, investors were caught off guard by the unexpected decline in the market, leading to a collapse of optimism—aka "panic"—caused by the selling of whales.
The market is flooded with Bitcoin "whales."
The price of bitcoin dropped below $40,000 in the last day, and in the space of a few minutes, more than $340 million worth of long futures were liquidated. Although the exact cause of the disaster is unknown, whale sale is likely to blame.
Coinbase Premium Gap (CPG) data shows that premium has dropped to -250, proving this. To put it simply, the CPG is an indicator that follows the spread between the USD pair for Bitcoin posted on Coinbase and the USDT pair for Bitcoin listed on Binance. Here we can see if Coinbase, the leading US-based investor, or Binance, the leading worldwide user, is purchasing or selling more coins.
If the premium gap is positive, then buyers are believed to be investors in the United States; if it is negative, then buyers are believed to be users all over the world.
On Monday, though, the indicator fell precipitously, which might mean that whales have intervened. This was further confirmed by the fact that Binance's exchange reserves fell, reflecting the sale of around 16,000 BTC, or more than $671 million, that had been amassed during the previous week.
During the intra-day trading hours, Bitcoin fell to a low of $40,654 as a consequence of the 7% slump induced by user fear. Since then, its value has increased, and as of this writing, it is trading for $41,839 per coin.
Many traders have been avoiding high-leverage risks in the derivatives market since the beginning of December. The decrease in the leverage ratio serves as proof of this. Traders will likely remain skeptical after Monday's drop and wait until January to make major wagers.
The expected level of Bitcoin price stability is $42,000.
The price of bitcoin has made a small recovery in the past few hours, and it is now back above $42,000. Bitcoin (BTC) may find some stability at this price over the next several hourly trading sessions, since it is a critical psychological and technical support level.
The cryptocurrency was due to see a fall, as seen in the chart below, following last week's negative divergence. In the past two days, Bitcoin's price has fallen as a result of the divergence between its higher and lower highs on the price chart and the Relative Strength Index (RSI).
Moving ahead, Bitcoin may see a retest of $40,000 and a subsequent drop to $38,000 if it can't maintain a price above $42,000.
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However, Bitcoin's price has the potential to rebound if bulls reclaim control and investors purchase BTC at the slightly reduced price. If the cryptocurrency were to break $43,000, the negative thesis would be rendered useless, and the asset would be redirected to trade at $44,000.