Bitcoin crashes over the weekend as whales take profit

GB Market Commentary 06/12/2021

by Marcus Sotiriou

The crypto markets took a nosedive in the early hours of Saturday morning – Bitcoin fell from $53,890 to $42,000 approximately, causing almost altcoins to collapse with it. This drop blindsided a large amount of investors, as many were expecting a huge rally going into year end. However, we have seen huge amounts of selling from whales as they have been depositing Bitcoin to exchanges at a staggering rate (as shown below).

I believe this is down to several factors, including worries regarding the Omicron variant, Evergrande moving closer to default, and, most importantly in my opinion, institutions wanting to secure profits going into the year end to manage risk. I personally think this sell-off has given weight to the lengthening cycle theory, where the bull market extends into 2022, contrary to many analysts’ expectations of a blow off top in 2021.

The crash was also down to a cascade in liquidations, as over $2 billion of leveraged positions was wiped out on Saturday. This deleveraging was exacerbated by the fact that it occurred on a Friday night in the US coinciding with the weekend in Asia, which is one of the lowest periods for liquidity. This meant that even though leverage was actually lower than it has been in previous crashes, the effect was still substantial. This shows that event though markets have become more efficient over time, it still has a long way to go to avoid these situations of forced selling.