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Bitcoin dropped by 7.4% overnight



21 Jan, 2021


Bitcoin dropped by 7.4% overnight

Bitcoin is the most famous and desired digital currency in the market, last night the price of Bitcoin declined steeply. Analysts assume that these three factors might be the reason behind the unexpected pullback. The reasons are an overheated derivatives market, growing doubt in the market, and the lack of upside volatility.

BTC/USD 15-minute candle chart (Bitstamp). Source: Tradingview Bitcoin derivatives market was extremely overheated, before the pullback occurred. The futures funding rate was hovering at around 0.1%, which is 10 times higher than the average 0.01%. The futures funding rate is a mechanism that achieves balance in the futures market by incentivizing long or short contract holders based on market sentiment.

BTC futures perpetual swaps funding ratess contracts to get liquidated in a short period. According to researchers at Santiment, there is “trader doubt' in the market on whether BTC would hit $40,000 again. They wrote:

“Thinking face There is an increasing amount of trader doubt that #Bitcoin will revisit $40,000. But according to address activity and trade volume, the long-term trend still looks plenty healthy. Keep a close eye on whether $BTC's usage rate stays propped up.' Bitcoin price causes concern among traders. Source: Santiment When we compare the initial rally to $42,000 in the early days of Jan and present trends Bitcoin has been seeing weak reactions from buyers throughout the past several days.

We can observe that whenever Bitcoin dipped to key support levels, like $35,000, there was often a big reaction from buyers.

However, since mid-January, there have been weaker reactions from buyers at key support levels. This indicates that the expectations of a rally toward the $40,000 to $42,000 resistance area have subsided, at least in the near term.

Current changes are worrying many traders but there are few traders who strongly believe that things will get different in a complete way and Bitcoin will see new highs.

These are only predictions based on the current trends, and might not reflect the same. So traders are suggested to choose wisely before making their investments.

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