Over the last two days, Bitcoin and Ethereum have experienced significant price declines, with Bitcoin dropping from $65,062 to $58,053, a 10.8% decrease—and Ethereum falling from $2,792 to $2,384, marking a 14.5% decline. Several key metrics provide insight into the factors driving this market downturn.
The recent price drop in Bitcoin positioned the average holding of short-term holders at a 17% loss. When prices rebounded to the average cost basis, short-term holders were able to sell at around break-even levels. This selling pressure created a resistance level, compounding the market’s fragility. Traders had been speculating on higher prices, further contributing to a precarious market environment.
Since August 5th, there has been a notable increase in Open Interest, rising from $13.5 billion to $17.9 billion, a 31% surge. Alongside this, Funding Rates remained positive, indicating a premium on perpetual contracts. These conditions often result in instability in traders’ positions, especially in a market where traders were already heavily speculating on future gains.
Increased Spot Inflows and Their Impact
According to CryptoQuant, despite the declining prices, spot inflows saw a noticeable increase. CryptoQuant noted a surge in Bitcoin inflows to spot exchanges during the price drop, predicting an escalation in selling pressure. This surge in inflows, particularly from large holders as observed by jjcmoreno, Head of Research at CryptoQuant, added additional strain to already fragile futures positions, leading to further market instability.
The volatility also triggered a surge in long liquidations. Ethereum saw $55 million in long liquidations, while Bitcoin recorded $90 million, the highest levels since August 5th. Additionally, numerous traders were stopped out, causing Open Interest to decrease by $2.2 billion. This added to the downward pressure on the market, exacerbating the recent price decline.
The recent price drop has left the market in a delicate state, requiring time to stabilize. Market participants are advised to monitor on-chain data closely in the coming days to assess potential future movements. As the market stabilizes, the focus will likely shift to how external factors and trader behavior influence the next phase of price action.
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