Bitcoin was nearly hitting a new all-time high earlier this week after it rose $19,469 for the first time since December 2017. However, today, it lost around 11% of its value.
Analysts’ expectations come true as BTC fails to overcome the $20,000 all-time highs. After Bitcoin price rose to a high of $19,580, it experienced a sudden drop to $17,250.
According to Cointelegraph Markets and TradingView data on Wednesday, BTC/USD experienced major volatility overnight, causing it to lose nearly $2,000 in just a matter of few hours. During the day’s trading, BTC hit highs of $19,500, but bearish indecision in the after-hours led to a sharp sell-off making it to fall to around $17,000. It later bounced to $17,250 to cap its daily losses. At the time of writing, BTC is trading at $17,057, which means that it has lost 11.23% in 24 hours.
Trader Tone Vays and CNBC host Brian Kelly are some of the analysts who had earlier warned that it was a pullback that led to the recent gains. According to their Thursday forecast, BTC might even dip to as low as $14,000. Popular Crypto Fear and Greed Index, amongst other several metrics, also joined the criticism suggesting that the popular crypto coin, which has enjoyed record-high levels throughout November, would soon experience a correction.
Bitcoin Price Drop Happened Due to Exchange Selling Pressure
Large-volume investors’ deposits of BTC to exchanges is thought to be the reason for the sudden price drop. Whales were trying to take profit near Bitcoin’s $20,000 all-time highs. They are known to buy or sell digital assets in high volumes.
On-chain analytics resource CryptoQuant, creator Ki-Young Ju, explained the scenario to various Twitter followers.
All Exchanges Inflow Mean increased a few hours ago.
It indicates that whales, relatively speaking, deposited $BTC to exchanges.
But long-term on-chain indicators say the buying pressure prevails. I still think we can break 20k in a few days.
— Ki Young Ju 주기영 (@ki_young_ju) November 26, 2020
As per some analysts, a 7.3% uptick in mining difficulty expected in three days’ time and a continuously growing hash rate would make the market to be more bullish. At the time of writing, BTC was hovering around the $16,800-17,300 region.
Factors Preventing BTC from Crossing $20K Hurdle
BTC was nearly hitting a new all-time high earlier this week after it rose $19,469 for the first time since December 2017. However, even after attaining such a peak, a couple of significant factors prevented it from surpassing its record high.
First, a possible bull trap scenario was looming. ‘Bitcoin Jack’ – known for coming up with the phrase ‘Bitcoin bottom in March’ – coined the term ‘potential bull trap scenario’ to describe a point wherein long holders or late buyers become trapped owing to a digital asset price drop. Bitcoin Jack’s projected a price trend where a potential pullback would occur in the event that Bitcoin rejects the $19,200 to $19,300 area.
Second, Bitcoin would enter price discovery mode when it crosses $20,000, thereby searching for a new ceiling since there is a lack of evidence or historical data beyond that point. Many analysts and industry have predicted that BTC would, thereafter, settle anywhere between the $25,000 to $100,000 price range if that were to occur. Therefore, sellers are aggressively defending their interests by making BTC not to go past $20,000.
Thirdly, extremely high funding rates compel sellers to trade below $20,000. Bitcoin perpetual swap contract funding rates have been ranging from 0.05% to 0.1% across various major cryptocurrency exchanges. Meaning, a large part of short-sellers positions as fees is catered for by long contract holders or buyers. With the highly positive funding rates, short-sellers are compelled to hold the market below the $20,000 region aggressively.