Bitcoin (BTC) experienced a massive dump early Sunday morning (April 18, 2021). The crypto king fell in price of nearly $ 10,000 from around $ 60,000 to a low of $ 50,900 (Binance). The level of support has continued and has not fallen any further, but no one is out of the woods yet. This also created a domino effect that is quite to be expected with the rest of the cryptocurrency market. The prices for Ethereum (ETH), Binance Coin (BNB), XRP and other altcoins fell along with BTC. ETH recorded a total of $ 1.16 billion in losses, while XRP losses totaled $ 496 million. Traders looking to reduce their losses got out on stablecoins like USDT and USDC.
It was leveraged traders who suffered the most loudly Reports. 1 million merchant accounts lost a total of $ 10 billion through liquidations as a result of the deep withdrawal. Most of the liquidations were long positions in BTC with leverage. The aftermath has been bloody throughout the cryptosphere, and many crypto influencers and enthusiasts wanted to know why prices suddenly fell. If you are new to this field, the most curious you are, but those who have been into crypto know that such crashes happen frequently and without warning.
Unless you are an experienced trader with sufficient capital, leveraged trading should be avoided. If you borrow capital from brokers or exchanges to trade, you must repay it. To establish a position in BTC, whether long or short, traders use leverage. The problem is, if things don’t go their way, it means a loss and repayment of what needs to be covered. The trade will be liquidated if it equals the loss of that position. Traders who are bullish can take a long position in the hopes that their leverage trade will increase in value. What happened on Sunday was when BTC prices fell, traders were at a loss, and their positions had to be liquidated.
Those who practice leveraged trading need to be aware of the pitfalls. The rewards are great, but risk management is required. Some exchanges like BitMEX Enable traders to leverage up to 100x leverage. This is basically money you don’t have to buy something you don’t have. This is the risk associated with this type of trading and this is what has been worrying regulators. However, if you are aware of the risk and are ready to act, there is only yourself to blame here. Leverage is in a way like gambling in that you are betting that the prizes will go your way. If you crave, expect the price to go up. If you go short, expect a decline. So you sell early and pay off at a profit.
Whales have been reported to have been selling BTC ($ 4 billion on the move) to some in terms of sentiment that the bull market has come to an end. It could also be a form of market manipulation when traders don’t want prices to rise too high for them to buy and accumulate more. There was also news that a drop in hash rate has occurred due to Power outages in China. There was other news that I won’t get into, but it seems like there is a bearish vibe right now.
So what’s really going on with the market?
There are many explanations, but no clear answer. However, corrections like these are perfectly normal. This is not the first time it has happened, things were much worse. Bitcoin fell up to 65% between January and February 2018. A drop of 30% to 40% is far less dire and usually signals that higher highs are imminent (with a grain of salt).
The market needs to recover, and that is part of a cycle. When prices go up, they don’t go up forever. People will earn profits along the way and that is understood. If you don’t take profits, someone else will. This activity results in a decline which then becomes a buying opportunity for those looking to enter the market. It repeats itself as a cycle all the time so the HODLers out there who stick to the basics will understand this so they don’t panic and sell.
Before the flash crash, BTC hit an all-time high near $ 65,000. It makes sense that there are people out there who wanted to collect their winnings. This is a reasonable explanation for why these incidents occur. Critics will then say that all of this volatility is why BTC is a poor store of value. They will then say that it is like newcomers are bag holders for the previous investors and if a dump comes they are left dry.
This reasoning is not based on fundamentals, but rather on speculation. Looking at the fundamentals of Bitcoin is entirely based on belief. So there are those who hold onto BTC no matter what happens in the market. Institutes that recently got in are likely to buy more BTC as prices have come down. When the price of BTC goes up, the idea is that it becomes less volatile and a better store of value.
The most important thing is that if prices go up like they have in the past few weeks, they don’t go up forever. If you are taking advantage of the trade and you expect things to keep moving up, think again. Manage your risk and be careful with over-leveraged long positions. It sounds too good to be offered $ 20,000 on a $ 10,000 trade, but you can only do that if prices go up. There are those who will bet against your position in the hopes that prices will fall and you will be liquidated or sell. This is like gambling and not part of the basics at all. Otherwise, HODL what you already have because you don’t lose anything. If you had 100 BTC before the crash and did not sell or trade with leverage, you still have 100 BTC.