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Bitcoin tumbled for a fifth-straight day, extending the largest cryptocurrency’s losses so far in May to 34%, the most for a single month since November 2018.
The full-blown retreat shook out bullish leverage from the cryptocurrency derivatives market, leading to more than $3 billion in position liquidations due to margin calls.
At press time, the bitcoin price was changing hands around $38,710, the lowest since Feb. 7 – just before tweets by Tesla CEO Elon Musk sent the cryptocurrency’s price skyrocketing. Prices hit a record high near $65,000 in April, and recent tweets by Musk that he had concerns over the environmental impact of bitcoin mining appear to have contributed to this month’s sell-off.
The top cryptocurrency slipped early Monday below its 200-day simple moving price average (SMA) around $39,825, seen as a key level of support. The average has come into play for the first time since April 29, 2020. Back then, the long-term technical line was located around $7,977.
While bitcoin has shed 15% in the past 24 hours, other top 10 coins such as ether (ETH), internet computer token (ICP), BINANCE token (BNB), cardano (ADA), XRP (XRP) have suffered more significant losses, according to data source Messari.
Amid the market-wide risk aversion, exchanges offering crypto futures have liquidated $3 billion worth of positions, per data source bybt.com. Bitcoin futures account for almost 50% of the total market-wide liquidations.
However, total liquidations seen in the past 24 hours are still just a third of the record $10 billion worth of forced closures observed on April 17, when bitcoin fell sharply from $60,000. Since then, the market has mostly seen daily liquidations of less than $4 billion, barring a spike on April 12.
The data shows the recent decline from $55,000 to below $40,000 is primarily driven by increased selling in the spot market. The number of bitcoins held on exchanges has risen by more than 65,000 BTC in the past seven days, per data provided by Glassnode. Investors transfer coins to exchanges when they want to liquidate their holdings.
The first leg of the ongoing correction – the drop from $60,000 to $52,000 seen in mid-April – was mainly due to the record liquidations. Forced closure of longs added to bearish pressures around the cryptocurrency, leading to an exaggerated price drop.
What's next for bitcoin
The correction could soon run out of steam as technical indicators show oversold conditions. Further, the order book is flashing signs of capitulation, the point at which traders trying to enter longs begin throwing in the towel.
“We are nearing capitulation to the downside,” crypto research firm Jarvis Labs noted in a Medium post early Wednesday while drawing attention to the relatively low concentration of leveraged longs at deeper price levels on Binance, the world’s largest crypto exchange as per trading volumes.
“The pink bubbles buried underneath the price represent 25x leveraged longs. Red bubbles are 50x longs, which hardly exist, and yellowish-orange are 100x longs, which are virtually non-existent,” the medium post said. “Bubbles above the price line are showing not only a large amount of 25x shorts but also 50x and even 100x.”
Capitulation is widely considered the final stage of the price sell-off.
However, analysts stand divided on whether the market has bottomed out. Patrick Heusser, head of trading at Swiss-based Crypto Finance AG, told CoinDesk that the market needed a correction, and prices could consolidate at lows before moving higher.
“Our desk is buying the dip,” Heusser told CoinDesk.
Stack Funds’ COO and co-founder Matthew Dibb said the pullback to the 200-day SMA is nothing out of the ordinary, but a further decline to $30,000 could be seen.
Bitcoin has taken a beating over the past week, falling sharply from over $50,000 to 3.5-month lows under $40,000.
“The BTC enthusiasm has been sucked out last week by the confluence of “Elon’s corporate ESG stamp of disapproval, the SEC’s public un-enthusiasm for any ETF & the CME backwardation,” QCP Capital noted in its Telegram channel.
Tesla’s Musk attempted to calm market nerves late Sunday with a Twitter announcement stating that the company hasn’t sold its bitcoin holdings. So far, however, that has failed to put a floor under the cryptocurrency.
