The price of Bitcoin (BTC) fell from $ 37,800 to $ 35,000 overnight, resulting in a $ 572 million settlement in cryptocurrency futures positions.
There are three main reasons why Bitcoin has fallen sharply in the last 12 hours. The reasons are overheating of the derivatives market, the increasing uncertainty in the market and the lack of bullish volatility.
The derivatives market was overheated before the correction
Before the downturn, the bitcoin derivatives market was extremely hot. The financing ratio for the futures contract fluctuated by 0.1%, which is 10 times higher than the average of 0.01%.
The forward financing rate is an equilibrium mechanism in the futures market by stimulating holders of long or short contracts based on market sentiment.
If there are several long-term contracts or buyers in the market, the financing rate will be positive. If it turns out to be positive, buyers should compensate the card sellers for part of the contracts every eight hours, and vice versa.
The financing rate for almost all the major cryptocurrencies rose to around 0.1-0.3%, which means that the market has been heavily utilized.
When the market is very busy, the likelihood of prolonged pressure increases, which can lead to many futures contracts being terminated in a short time.
Growing uncertainty in the market
There are “traders’ doubts” in the market about BTC reaching $ 40.00 again, according to Santiment researchers. They wrote:
“Thinking person. Increasingly, traders are skeptical that Bitcoin will return to $ 40K. Depending on target activity and trading volume, the long-term trend still looks good. Make sure BTC usage remains high.”
The Bitcoin price is a concern for traders. Source: Santiment
The basics of the Bitcoin blockchain remain strong, such as address activity and trading volume. However, market sentiment fell last week as BTC continued to struggle to break through the $ 38,000 resistance zone.
There are no fluctuations in growth
Bitcoin has seen little buybacks in recent days compared to the original high of $ 42,000 in early January.
In the early stages of the rally, when Bitcoin fell to key support levels such as $ 35,000, buyers often received setbacks.
Since mid-January, however, buyers at key support levels have reacted more weakly. This indicates that growth expectations towards the $ 40,000 to $ 42,000 resistance zone have declined, at least in the short term.
During the first two weeks of January, the selling pressure on Bitcoin came mainly from Asia. But as the correction over January 19 shows, Bitcoin has also begun to see weakness in the US market.
It seems that the limited bullish volatility and lack of bullish momentum are forcing traders to be cautious about the near future. This probably means that BTC will face an extended consolidation phase by February.