TL: DR Breakdown:
- Flash Bitcoin fell to $ 43,000 on Tuesday as El Salvador legalized payment.
- Experts explained that the decline was largely due to liquidity in the derivatives market.
- Nevertheless, intra-chain data is still bullish, indicating that the bullish trend may continue.
At a time when it could be considered a wrong timing, the largest cryptocurrency, Bitcoin Flash, fell on Tuesday, the same day that the El Salvador government officially declared it a legal entity. Not only bitcoin, the main altcoins, including Ether, Binance Coin and Solana, etc., were hit, leading to liquidity of cryptocurrencies in the derivatives market.
Causes of Bitcoin Flash crash on Tuesday
According to Coingecko, the price of Bitcoin fell more than 11 percent from a high of $ 51,101 to $ 45,299. However, major exchanges such as Binance and Coinbase are valued at $ 42,900. Overall, the fall of the Bitcoin flash led to a 11.6 percent drop in total cryptocurrency market capitalization to $ 2.16 billion.
In the first stage, it is worth mentioning that this incident was mentioned as a reminder of the instability of Bitcoin and other cryptocurrencies. The market value of digital currencies may increase or decrease significantly at any time. In addition to market instability, there was talk of legalizing Salvador on September 7 in El Salvador.
People believed that bitcoin would increase in value by $ 30 following the news of El Salvador’s acceptance and the crypto community’s plan to buy bitcoin. Hence, some traders had issued sales orders to rapidly increase Bitcoin profits.
Experts say $ 3.7 billion in liquidity caused the Bitcoin flash to crash
However, according to cryptologists, the main reason for the fall of the Bitcoin flash was the huge volume of cash positions on Tuesday. Sales in the market were large enough to accumulate liquidity in the derivatives market of more than $ 3.7 billion. Up to $ 1.3 billion Bitcoin position was dissolved.
Liquidity pushed the price of bitcoin to its lowest level at the time. This is obvious because there was no significant flow in the exchanges that indicates widespread sales in the market.
“The last auto sale started with huge liquidity with a total loss of about $ 3 billion. If we analyze the stock market cash reserves, we find that we are at the lowest level,” he said.
Many other digital currency analysts, including Willy Woo and Will Clemente, shared this view, adding that liquidation is a healthy clearing for the bitcoin market.
What happens after the Bitcoin flash crashes?
According to Clemente, the fall of the Bitcoin flash is not the end of the bullish market. Much of the data in the chain is still bullish. As the market declined, the position of long-term holders increased. There is still no sign of a crazy entry into the exchange offices, which is bullish. However, it is not yet clear that Bitcoin will soon rise to the $ 50,000 price level.
At the time of this writing, the original cryptocurrency was trading at $ 45,728 on CoinMarketCap.