Bitcoin has been on a tear for the past week. The premier cryptocurrency was on a rally ahead of the Bitcoin halving that brought its price to $10,000. However, the price of Bitcoin recently fell from $10,000 to $8,100. Why did this happen, and does it a put a post-Bitcoin halving rally in jeopardy?
Bitcoin has historical issues with overcoming $10,500
According to analysts, there are three key reasons responsible for Bitcoin’s recent flash crash. However, one should point out that the price of Bitcoin has since begun surging again. At the time of writing, Bitcoin is currently trading at $8,653.
First and foremost, one should keep in mind that the $10,200 to $10,500 spectrum represents a historically strong resistance range. The past two years have seen Bitcoin fail to move above $10,500 five out of six times.
Moreover, the past week’s bull run was similarly cut short at $10,100. At this price point, Bitcoin broke down as it meet significant resistance. Additionally, a recent report from CoinTelegraph suggest Bitcoin whales then began sell off.
Traders began shorting Bitcoin at a pivotal moment
This also led to a mass-liquidation of long contracts on Binance Futures and BitMEX. In fact, over $200 million worth of longs was supposedly subject to liquidation in less than one hour.
Furthermore, this also set off a chain-reaction through which traders began shorting Bitcoin across various major crypto exchanges. This was responsible for exacerbating the downward pressure on Bitcoin due to a surge in short contract holders.
Put simply, this means that the sudden reversal in investor sentiment made traders begin betting against Bitcoin. This came at a critical time for the Bitcoin price, which was responsible for the sharp decline in Bitcoin’s price.
Halving uncertainty is leading to sell-offs
Additionally, the crypto market is also seeing some substantial volatility ahead of the Bitcoin halving. For example, platforms such as CME and Deribit are seeing record-high open interest and volumes.
The Bitcoin halving is due in a little over one day, at roughly 00:07 UTC on May 12th. This event is widely seen a bullish market event, with it effectively halving the Bitcoin supply. However, the uncertainty ahead of the Bitcoin halving is also driving some sell-offs.
Such a sell-off is not without precedent. The 2016 block reward halving saw Bitcoin’s price drop by nearly 30%, before the price began surging. Consequently, it will be interesting to keep an eye on the crypto markets in the hours leading up to the halving.
Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the blockchain industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.