What Caused The Market Crash? On-chain Analyst Might Have The Answer
Bitcoin (BTC) crashed by $9,000 in matter of hours on Tuesday due to a mass unwinding of leveraged traders and borrowers, according to on-chain analyst Willy Woo. He took to Twitter along with other analysts to discuss the reasons for the crash.
In a series of tweets on Wednesday, Willy Woo was trying to get to the bottom of what made BTC/USD dropped to lows of $42,800 on Tuesday.
Margin borrowers and open interest
With rumors flying over who was behind Bitcoin’s major price dip, analysts have been crunching data in order to understand what caused the event.
Analogies to the March 2020 crash, sparked by coronavirus measures, abound, but Tuesday’s event showed major differences, Woo said.
He tweeted:
“Leverage markets sold off but investor buying just got stronger.
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.”
Leverage markets sold off but investor buying just got stronger.
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.
Woo thought 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.
I think I may have found the culprit. Even though Open Interest was crazy high, spot margin borrowing was also peaking leading up to the crash.
Both markets combined created enough deleveraging power to flush price.
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.
According to on-chain monitoring resource Whalemap, large-volume investors who were newcomers to the market provided the vast majority of sell-side pressure.
Whalemap tweeted a chart showing where those parties had acquired BTC, saying:
“So yesterday we had a sell off. The move was quite violent and large volumes of Bitcoin were being sold off on spot markets. But who was selling? Not HODLers. Mostly whales and in fact the ones that bought their btc only quite recently.”
So yesterday we had a sell off. The move was quite violent and large volumes of #Bitcoin were being sold off on spot markets. But who was selling? Not HODLers. Mostly whales and in fact the ones that bought their btc only quite recently pic.twitter.com/cO9LkYuCYl
