Why did the bitcoin price drop 7 percent overnight?

Bitcoin (BTC) price dropped sharply last night, falling from $ 37,800 to $ 35,000, causing $ 572 million worth of cryptocurrency futures positions to be liquidated.

There are three main reasons for the Bitcoin price drop: the over-rising derivatives market, growing concern in the industry, and the lack of upward volatility.

Bitcoin Price Index: 1 Bitcoin How Many TL? (BTC TL)

The 15-minute candlestick chart (Bitstamp) of the BTC / USD pair. Source: Tradingview

The derivatives market soared

Before the correction took place, the Bitcoin derivatives market had risen enormously. The funding rate, which was 0.01 percent in normal times, was around 0.1 percent, which is ten times that rate.

Funding rates for BTC futures continuous swap contracts. Source: Digital Assets Data

The funding rate of futures is a mechanism that maintains balance in the market by offering incentives to long or short position holders.

If there are more long positions or buyers in the market, the funding rate turns positive. When the funding rate is positive, buyers must give part of their contracts to short position holders every eight hours. The opposite happens when the sellers are dominant.

Recently, the funding rate of almost all major cryptocurrencies has risen to between 0.1 and 0.3 percent, which means the market has borrowed heavily.

The crowded market increased the possibility of a long position squeeze, and many futures contracts were liquidated in the short term.

Uncertainty is increasing in the market

According to Santiment researchers, there is no question whether the BTC price in the market will see $ 40,000 again. there is great uncertainty:

“Investors are increasingly concerned about whether the Bitcoin price will see $ 40,000 again. However, address activity and transaction volume data show that the long-term trend still looks very healthy. Watch closely if the utilization rate of BTC holds up to the current level. “

Bitcoin price causes concern among investors. Source: Santiment

The fundamentals of the Bitcoin blockchain network such as address activity and transaction volume remain strong.

Lack of upward volatility

Bitcoin has received weak buyers in recent days, compared to the $ 42,000 rally in January.

BTC received great interest from buyers when the price dropped to key support levels of $ 35,000 in the early stages of the rally.

However, this interest started to weaken since mid-January. This shows that the rally expectations against the resistance of 40-42 thousand dollars decreased, at least in the short term.

The majority of the sales pressure in the first week of January came from Asia. In the correction on January 19, it was seen that the US market started to weaken.

All these factors continue to cause concern among investors in the short term. Therefore, it seems likely that Bitcoin will continue to consolidate until February.

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