Three reasons why Bitcoin dropped 7% and lost $40,000 By CriptoFácil

© Reuters. Three reasons why Bitcoin dropped 7% and lost $40K

In just a few hours, the price of (BTC) has dropped over 7.5% and has given back virtually all of the week’s gains. As a result, the cryptocurrency market lost around BRL 1 trillion in value, while BTC dropped below $40,000.

But what could have led to such a strong movement in just a few hours? Apparently there were three different reasons, two of them exclusive to the cryptocurrency market. The correlation with equity markets, high flow of BTC to exchanges and options settlement.

Risks of high correlation

As CriptoFácil reported, the correlation between BTC and the S&P 500 stock index was already showing signs of concern. In this sense, the main index of the United States fell 1.1% on Thursday (20). As a result, the S&P 500 dropped below 4,500 for the first time since October 18, 2021. The index was down 1.3%, while it closed down 0.89%.

In other words, the market showed major weaknesses in recent weeks, which resulted in the fall of the major indices. And the price of BTC is no exception, being firmly correlated with that of traditional indices.

Increase in BTC flow to exchanges

An indicator of potential selling pressure is the total BTC flow on exchanges, i.e. how many units are being shipped. When that number increases, it means more people want to sell their BTC, which puts pressure on prices.

According to data from CryptoQuant, the inflow of BTC on exchanges has been increasing since January 17th. Only on six days of the month this flow was below 30 thousand BTC, which indicates selling pressure.

Settlement of options at $39,000 on Deribit

Finally, put options were another reason that brought down the price of BTC. These puts, traded on the Deribit exchange, sell at $39 the highest open interest among listed options.

For those unaware, put options generate profit for their holder when the price drops. On the other hand, put options (call) make a profit when the price goes up. In this regard, BTC price calls at $44,000 had the most open interest among call options.

It should be noted that there are approximately $538 million worth of BTC options contracts that will expire on Deribit this Friday (21). That is, it is possible that there will be more volatility in the market after expiration.

By CryptoFácil