Bitcoin drop due to liquidations and reduced orders: what’s happening?

The recent price drop of Bitcoin is due to two separate dynamics.

On the one hand, there is a reduction in buying pressure, as emerges from the order books, which seem to have been declining for days now.

On the other hand, there are the forced liquidations of leveraged long positions, which increase selling pressure.

In theory, just one of these two dynamics could be enough to push the price down, but in this case both are taking place at the same time. However, in light of this we can say that for now the drop has not been particularly significant.

Liquidations

Starting from last week, many long positions on Bitcoin have been opened.

These are mainly positions opened by retail speculators, probably leveraged, waiting for the psychological threshold of $80,000 to be surpassed.

It should be remembered that retail speculators often make mistakes, and since crypto market data is largely public, it is not difficult for whales (especially institutional ones) to know how retail traders are positioned at any given time.

Yesterday, moreover, last week’s trend changed, to the point that it probably led whales to start shorting Bitcoin precisely in anticipation of the forced liquidations of retail long positions.

Starting yesterday, when the price fell from above $79,000 to below $78,000, forced liquidations began.

To tell the truth, there do not seem to have been many, but in a situation where buying pressure is low they immediately had an effect.

During yesterday morning there was a first liquidation session, lasting about a couple of hours, and in the afternoon there was another one, which however lasted only an hour.

Due to these two events, the price fell to below $77,000.

The order book

When forced liquidations of long positions on Bitcoin are triggered, $BTC is sold, and when someone makes a sale it necessarily means that there is someone who has made a purchase.

The point is that, since these liquidations are forced, the sales take place immediately, matching with the buy orders already present on the market.

If these buy orders have limited volumes, or are placed at rather low price levels, the selling price will inevitably end up falling significantly.

Currently the order books (often publicly viewable on crypto exchanges) are not particularly large, and this means that buying pressure is in fact low.

In such a context, the price drop was inevitable.

Shorts

On top of all this, it should be added that institutional whales may even have opened short positions on $BTC today.

This means that they are very likely expecting further declines, also because for now buying pressure remains low.

To tell the truth, the current situation is in constant and rapid flux, and institutional whales, who rarely make mistakes, are currently active mainly with short- or very short-term positions. Therefore, the situation could also change at any moment.

However, for now it seems really difficult for the price of Bitcoin to recover in the short term, unless something happens that reverses the trend.

Above all, it will be necessary to wait for institutional whales to close their short positions in order to hope for a trend reversal. It should be remembered that short positions are bets on a price drop, which can be closed in profit precisely if the price falls.

It should also be noted that institutional whales have now closed their long positions on Bitcoin for days, particularly above $78,000, as if to say that they did not expect further strong price increases.

However, we must not forget that the current week is full of events, so in theory things could also change at any moment.

In short, uncertainty remains sovereign, except for the fact that volatility should remain high, at least in theory.