Bitcoin has been falling for the past few hours after everything seemed to be going well for the past few days. BTC rallied to highs above $43,000 yesterday and is testing key resistance around $44,000.
Unfortunately, the price was later rejected and reduced to $38,000. As a result, over $700 million worth of positions were liquidated in less than 24 hours. So what is causing the price drop?
Source: Trade View
Here are 3 possible reasons for the recent downturn in Bitcoin and the market as a whole.
Macro sell-off and high correlation
The S&P 500 index closed down 1.1% yesterday. The NASDAQ index is down 1.3% over the same period. The Dow Jones Industrial Average fell 0.89%.
But that’s not all, the derivatives market is also affected. Nasdaq 100 futures fell after disappointing earnings reports from Netflix. Shares of the streaming giant fell more than 19% in extended trading on Thursday following the release of the document, signaling a slowdown in subscriber growth.
The S&P 500 closed below 4,500 yesterday for the first time since October 18, 2021. On that subject, T3 Live’s Scott Redler said:
“The market has been flashing error signals for the past few weeks and it looks like many other indicators are finally collapsing.”
Meanwhile, bitcoin price is highly correlated with traditional indicators and the recent drop is no exception.
Bitcoin x S&P 500 x Nasdaq 100 x Dow Jones | Source: TradingView
BTC inflows into exchanges are increasing before the price falls
One indicator of potential selling pressure is the overall inflow of BTC into exchanges. The more BTC there is on the exchange, the higher the usual potential selling pressure.
According to data from CryptoQuant, overall inflow to the exchange increased in the days leading up to the crash:
Total inflows into the stock market | Source: CryptoQuant
This metric has been rising since Jan. 16 and has spiked in price, suggesting that BTC was moved to exchanges with an intention to sell.
$39,000 put option on Deribit with the highest open interest
The $39,000 strike put option on Deribit has the highest open interest (OI) of any put options.
For those who don’t know, put options are profitable when the price falls. On the other hand, call options have the highest open interest with a strike price of $44,000. It is worth noting that around $538 million worth of bitcoin options expire on Deribit today.
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