Recently we had a Bitcoin dip where the price of the currency dipped from $66k to less than $60k. And this dip can be attributed to the leverage that traders take in the market. When the price of a cryptocurrency goes too high for a while, we can see that the exchange funding rate goes up. This means that a lot of investors are opening highly leveraged longs, which pushes the price. But when whales sell their holding to flush people out, the price starts to fall, forming bigger candles one after the other in a domino fashion.
Leverage causing the market crash
If you take a look at the market metrics, the price of the cryptocurrency coming down reduces the funding rate at exchanges. We can again see things go back to normal, which opens the possibility for another price rise. This time’s dip was comparatively large as even the RSI reset to levels not seen since $40k. It is also important to note that when there is too much leverage, it has the chance to trigger the domino effect, which then takes the correction too far.
When whales sell, the prices dump but not as much as we see in normal corrections. What happens is that the sudden price dump causes liquidations in the leveraged markets, and that causes more dumps. And it finally stops at a level where liquidations slow down, and the market recovers with more buying and longs. Even the recent crash clearly shows that the price didn’t fall at once. There were smaller candles followed up larger ones which is the entire premise of the domino effect caused by leverage.
The simple idea
Traders and large investors always have a clear look at both the derivatives and spot market. And oftentimes, the derivative market can help figure out the next move of the market. Only a very few people in the future trading are professionals while most being speculators. And these are the one’s whales target and flush out to make a lot of money.
What are your thoughts on the latest Bitcoin dip? And do you think that leverage is the reason that we see such a strong pullback in Bitcoin? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.