Bitcoin has experienced a very volatile period of trading over the past 24 hours, in which BTC rose to a high above $9,000, only to crash moments later around the $8,200 level. The cryptocurrency flash crash had wiped over $13 billion from Bitcoin’s market cap value, which now currently sits at around $148 billion.
Prior to the “flash crash,” Bitcoin had been trending very well during May 2019, rising by a total of over 55% throughout the period. The market had come up to meet resistance around the $8,888 level but stalled trying to breach this level.
However, in yesterday’s trading session, we can see that Bitcoin spiked higher above $8,888 and $9,000 to reach a high of $9,090 before the reversal occurred. After Bitcoin rolled over, it continued to fall at an aggressive pace and even managed to spike beneath the $8,000 level within 6 hours of poking above $9,000.
Bitcoin has since rebounded slightly from the $8,000 level to where it currently trades at around $8,400. However, the recent flash crash has started to erode some of the confidence for the bulls within the market, as this was totally unexpected.
What Caused the Dumpage?
As there was no major news announced, the recent price falls have largely been attributed to technical aspects within the market. One of the most prominent reasons relates to a concept known as stop-hunting, which is a process where large whales within the market push price action higher (or lower) in order to trigger stop-loss levels in the nearby facility.
In the case of Bitcoin yesterday, the price was driven above $9,000 to trigger all the stops above $9,000, causing a wave a selling. The idea behind stop-hunting is to drive the price lower so the whales can accumulate more of the asset on the next wave higher.
Although stop-hunting has been suggested, it could also have been just a natural phenomena where price action rose above $9,000 to trigger traders’ stops organically. Either way, as Bitcoin penetrated above $9,000 the stops were triggered and an overwhelming level of traders started to take profits off of the table, causing Bitcoin to reverse and fall precipitously.
Should We Be Concerned?
Traders should not really be concerned. It is about time that some traders started to take some profits off of the tables, as Bitcoin has managed to surge by an extraordinary 116% over the past 90 trading days alone. However, now that the previous stops have been cleared, the next time that Bitcoin makes another attempt above $9,000, there should not be too much in the way for it to continue toward $10,000, where we will likely see another repeat, once again, of the volatility seen over the past 24 hours
“In the case of Bitcoin yesterday, the price was driven above $9,000 to trigger all the stops above $9,000, causing a wave a selling.”
Not sure about your stop loss theory. If the price goes above 9k to trigger the stop-losses, then those stop-losses are all from short positions. Right? So closing all those shorts would result in buy orders which would drive the price up.
Stops above 9K triggered the waves of Buy orders which provided not enough supply for whales to fix their positions. Therefore whales absorbed those Stops(Market Buys) and dumped market even deeper.