Why Bitcoin, Ethereum and Dogecoin fell, and then fell today
What happened
In the cryptocurrency sector, wild swings are often seen as par for the course. Consequently, some of the incredible moves we’ve seen in recent days among the top cryptos by market cap may not necessarily feel out of the ordinary.
With that said, Bitcoin, Ethereumand Dogecoin have each seen incredible moves to the upside and downside in the last day.
Yesterday afternoon, between approx. 4:00 PM and 5:00 PM ET, these three tokens plunged around 7% in an hour. This move coincided with reports from blockchain analytics firm Arkham that crypto wallets linked to defunct crypto exchange Mt. Gox and the US government reported large transactions. Since this report was published, these three tokens have recouped most of their losses, but are still down 2.3%, 2.8% and 3.1% respectively over the past 24 hours.
Interestingly, the rapid decline in the price of Bitcoin happened just before the warning was tweeted, with some experts suggesting that hundreds of millions of dollars in liquidations were responsible for the move in Bitcoin, Ethereum and Dogecoin.
So what
It is quite coincidental that the mini-flash crash seen in these three tokens in the last day coincided quite closely with reports of large transactions from these two dormant accounts. These large transactions were reportedly unrelated, meaning it is unlikely that the US government sold or transferred assets related to Mt. Gox, one of the first major crypto exchanges to be hacked, filed for bankruptcy and linked to allegations of fraud. However, it is difficult to say what specifically would have driven such a sharp move lower, resulting in mass liquidations.
The most likely explanation for the wild swings in these top three tokens is once again massive liquidations of leveraged positions. The crypto market is one that continues to move in a more volatile manner, partly due to the relatively high use of derivatives for traders to bet on the movement of particular cryptos. When everything goes right, this can lead to faster moves to the upside. However, when these long contracts are liquidated (essentially resulting in selling pressure), downside moves can accelerate.
What now
The fact that Bitcoin, Ethereum and Dogecoin are working their way back to balance after these massive moves yesterday afternoon is a good sign for crypto bulls. With these liquidations out of the way, crypto investors seem to be focused on accumulating tokens on this downturn. A buy-the-dip mentality appears to be re-emerging among top crypto assets, suggesting that the bull rally we’ve seen in digital assets so far in 2023 may still have some legs.
Of course, there are many macro factors that could derail this impressive rally we have seen this year. But for now, these top three tokens seem to have impressive bullish momentum.
