Bitcoin’s price took a sharp nosedive over the past two days, dropping from $65,062 to $58,053, a staggering 10.8% decrease. This recent decline has sent shockwaves through the cryptocurrency market, leaving investors and traders scrambling for answers. In just the past three months, Bitcoin has tumbled 12%, now trading 20% below its March peak of nearly $74,000. The question on everyone’s mind is: What triggered this sudden downturn?

Maartunn, a leading analyst at Crypto Quant, has delved into the data, identifying five critical charts that shed light on the factors behind Bitcoin’s dramatic fall.

1. Short-Term Holders Create Resistance

One of the primary contributors to Bitcoin’s recent price drop is the behavior of short-term holders. These investors, who bought Bitcoin at higher prices, are now facing significant losses. Earlier this month, Bitcoin’s sharp decline left short-term holders with an average loss of 17%. As the price began to recover, these holders sold their positions at break-even, creating a resistance level that has hindered further price recovery.

This sell-off at break-even levels has created a significant obstacle for Bitcoin’s price to overcome, contributing to the ongoing struggles and the sharp decline we’ve witnessed.

2. Rising Open Interest

Another key factor identified by Maartunn is the rising open interest in the Bitcoin futures market. Open interest, which measures the total number of outstanding futures contracts, has surged by 31% since August 5th, increasing from $13.5 billion to $17.9 billion. This rise in open interest indicates a growing level of speculation in the market.

However, the situation is further complicated by positive funding rates, which suggest that perpetual contracts are trading at a premium. This scenario adds to the market’s instability, as speculative trading activity increases the likelihood of sudden price movements.

3. Bitcoin ETFs Inflow Amidst Price Decline

Despite the recent price drop, U.S. spot Bitcoin exchange-traded funds (ETFs) have seen strong performance. Over the past eight consecutive days, these ETFs have experienced net inflows totaling $195.65 million. This influx of funds has primarily come from large holders, according to another Crypto Quant analyst, IT Tech.

These inflows into Bitcoin ETFs, while seemingly positive, have added further strain to the already unstable futures positions. The increased demand from large holders has not been sufficient to counterbalance the selling pressure from short-term holders, leading to further downward pressure on Bitcoin’s price.

4. Surge in Long Liquidations

The recent price decline has also triggered a significant increase in liquidations. Long liquidations occur when traders are forced to sell their positions at a loss, often due to margin calls or stop-loss orders being triggered. In this case, Ethereum long liquidations surged to $55 million, while Bitcoin long liquidations reached $90 million—the highest levels seen since early August.

This surge in liquidations has had a domino effect, causing open interest to drop by $2.2 billion as many traders were forced to exit their positions. The liquidation cascade has further exacerbated the price decline, creating a vicious cycle of selling pressure and falling prices.

5. Market Stabilization Needed

The recent market turmoil has left many traders in a precarious position. The sharp decline in Bitcoin’s price, coupled with the surge in liquidations and rising open interest, has created a highly unstable market environment. As a result, the market will need some time to stabilize before any meaningful recovery can occur.

Monitoring on-chain data will be crucial in the coming days to understand future price movements and market conditions. Investors and traders alike will be keeping a close eye on these indicators to gauge whether the market has found a bottom or if further declines are on the horizon.

Conclusion

Bitcoin’s recent 10.8% plunge in just two days can be attributed to a combination of factors, including resistance from short-term holders, rising open interest, strong inflows into Bitcoin ETFs, and a surge in long liquidations. As the market navigates through this turbulent period, stabilization will be key to preventing further declines and paving the way for a potential recovery.