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‘Who was selling? Not HODLers’ — New data hints at Bitcoin crash ‘culprit’ amid leverage wipe-out

The Cointelegraph ​

Cryptocoins News / The Cointelegraph ​ 309 Views

A classic dichotomy between hodlers and leveraged traders sets this week’s Bitcoin price dip apart from the coronavirus crash of March 2020.

Bitcoin (BTC) crashed by $9,000 in hours on Tuesday thanks to a mass unwinding of leveraged traders and borrowers, one analyst believes.

In a series of tweets on Wednesday, Willy Woo sought to get to the bottom of what made BTC/USD dive to lows of $42,800 on Tuesday.

Woo: Bitcoin margin borrowers and open interest may be to blame

With rumors flying over who was behind Bitcoin’s major price dip, analysts have been crunching data in order to understand where the rout began.

Analogies to the March 2020 crash, sparked by coronavirus measures, abound, but Tuesday’s event showed major differences, Woo said.

“Leverage markets sold off but investor buying just got stronger,” he summarized.

“BTC flash crashes are caused by deleveraging, the COVID crash was similar in that derivatives overreacted, but back then it was supported by investors. This one was completely divergent and a mystery. Cheap coins.”

Woo subsequently suspected that the dip came as a result of margin borrowing and open interest. In a classic domino effect, positions unwound to produce a “cascade” of liquidations and a positive feedback loop, which severely impacted spot price.

“Healthy cleansing”

While the processes involved may be complicated for the average observer, the strength of Bitcoin’s rebound and ongoing investor buy-ins suggest that cold feet among hodlers were not involved in the event.

Related: Bitcoin's sharp fall from $50K linked to stronger US dollar, gold correlation shows

According to on-chain monitoring resource Whalemap, large-volume investors who were newcomers to the market provided the vast majority of sell-side pressure.

“So yesterday we had a sell off. The move was quite violent and large volumes of Bitcoin were being sold off on spot markets, researchers tweeted alongside a chart showing where those parties had acquired BTC.

“But who was selling? Not HODLers. Mostly whales and in fact the ones that bought their btc only quite recently.”
Bitcoin whale outflows annotated chart. Source: Whalemap/Twitter

For fellow analyst William Clemente, meanwhile, Tuesday provided a welcome reset of frothy derivatives markets.

“Investor activity strengthening + Leveraged speculators wiped = healthy cleansing,” he concluded alongside Woo’s findings.


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