Bitcoin lost $16,000 in value within hours and its price plunged in just one day. The rest of the market also fell in the same time period. The analytics firm CryptoQuant claims that there were many on-chain developments that showed up before the crash, which could have been foreseen by the dump.
The Three On-Chain Factors
BTC plummeted from a daily high at $58,000 to $42,000 today. This was the worst crash in USD terms. Investors are now looking at global developments to understand the reasons, including more fears from the COVID-19 variant, and the weekly stock-market sell-off. CryptoQuant however, provided many on-chain possible explanations.
First, the number of bitcoins on exchanges. This spiked quickly hours before the drop. Over the last several months, this metric has been steadily declining and reached new lows. The graph below shows that there were more bitcoins than 45,000 deposited per day.
Bitcoin All Exchanges Reserve. Source: CryptoQuant
The second was the All Exchanges Estimated Leverage Ratio. This measures the open interest in all trading venues, divided by their BTC reserves. This metric measures the amount of leverage investors use, which spiked dramatically hours before the crash.
Over-leveraged traders were the worst affected by the crash. Daily liquidations exceeded $2.5 Billion.
Bitcoin All Exchanges Leverage Ratio. Source: CryptoQuant
The Exchange Whale Ratio was the third metric. This compares all deposits with exchanges and the 10 largest deposits. CryptoQuant says that the indicator tends lower than 85% in bull market, but it drops below 85% when in bear markets.
It has been hovering above 85% over the past few weeks, and even climbed to north of 90% within the last few days.
Bitcoin Exchange Whale Ratio. Source: CryptoQuant
What else has changed?
This sudden and massive price drop led to other unusual activities. The Coinbase Premium Index, which shows the difference in bitcoin prices on the largest US-based exchanges and other trading venues, soared.
Coinbase’s spot buying pressure tends to be stronger when the premium is higher. Surprisingly, Ethereum’s premium grew as well.
Bitcoin Premium on Coinbase Source: CryptoQuant
Wu Blockchain also highlighted the premium on South Korean stock exchanges. The journalist described them as retail-oriented trading platforms. This metric increased quickly, as the image below illustrates. It suggests that retail investors were rushing in to buy the dip, just like El Salvador.
Bitcoin Premium on Korean Exchanges Source: CryptoQuant
Marla Brooks – Financial Analysis
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