What Happened Last Night?
Last night (PST) Bitcoin was at $55K and within 12 hours it dropped to $45K or -18%. The current price is hovering $48.6K.
Why did the price drop so hard and so fast?
There are a few hypotheses out there, some of which could be working in confluence. See below for more details.
Price overheated - The BTC price at $58K was overheated when looking at on-chain data and seeing that retail entered in droves. Retail tends to make the market more volatile, both for upward and downward price swings. See the on-chain NUPL data below.
NUPL from 2011 to Now
(The Net Unrealized Profit/Loss - NUPL - show how much of bitcoin’s circulating supply at any given point is a profit or loss. As we can see from previous cycles when NUPL starts getting around 0.75 or above there are sharp 10-35% price declines. I.e. 0.75 is the hot zone. In this chart you can the price drop where the green lines start heating up.)
NUPL in current Bull Market
(Above we can see that NUPL touched 0.75 and then price spiked downward from $58K to $45K or 22% over a 48 hour time period. This same pattern happened in previous bull run cycles. We can see a similar patter happened in Jan 2021 when NUPL was nearing 0.75 and the price plummeted from $42K to $29K. The 0.75 ratio is the danger zone because price can go parabolically up here as well as down.)
Potential Wallet Labelling Error - There was a potential wallet labelling error that maybe have falsely indicated $1.5B worth of BTC was transferring to an exchange. A real $1.5B transfer to exchange would indicate a big whale is about to sell and prices would then correspondingly plunge.
Massive Liquidation of Stop Losses occurred - According to Bybt $4.44B was liquidated from 475K traders within 24 hours. This sell-off may have been triggered when traders so $1.5B go onto the exchanges.
(Above is a graph depicting most of those liquidations.)
Stop-Loss Hunting
(Big market players buying the dip and taking out smaller players with their stop losses.)
What’s the meaning of this price change?
Percentage prices downward like this are normal during Bitcoin bull runs, which we are in the thick of. Today on the What Bitcoin Did podcast, Willy Woo mentioned that the fact that the recovery from the dip from $58K to $48K back up to $54K means there is strong floor price. (He made this specific comment last night (PST) when the price was fluctuating.) Willy Woo called out that we have a very strong floor price at $42K according to his proprietary price floor model.
We expect a period of consolidation between $42K and $55K (our words not others) before another upward trajectory continues as institutions and high net worth individuals continue to have strong momentum. We are trusting Willy Woo’s proprietary floor price model, which hasn’t been broken since the beginning of bitcoin. We will provide updates as circumstances change.
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Have good evening everyone,
Bitcoin Daily
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