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3 Fundamental Reasons Bitcoin’s Price Is Crashing

Summary:
Bitcoin’s outlook went from bullish to extremely bearish real quick. Institutions may be playing a huge role in the current selloff. Miners and retail traders add to the supply of bitcoin in the market. Bitcoin is down over 21% in eight days. It has taken out key support of ,400. Even worse, it is dangerously close to breaching psychological support of ,000. With bears enjoying total dominance, the cryptocurrency market reeks with extreme fear. The bullish steam that drove bitcoin to a massive 40% gain in two days has gone out the window. The buying momentum dissipated as fast as it appeared. This left many traders scratching their heads. How can one asset switch from bullish to bearish this quick? I did some digging and discovered three solid reasons why bitcoin is suddenly in a

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  • Bitcoin’s outlook went from bullish to extremely bearish real quick.
  • Institutions may be playing a huge role in the current selloff.
  • Miners and retail traders add to the supply of bitcoin in the market.

Bitcoin is down over 21% in eight days. It has taken out key support of $7,400. Even worse, it is dangerously close to breaching psychological support of $6,000. With bears enjoying total dominance, the cryptocurrency market reeks with extreme fear.

3 Fundamental Reasons Bitcoin’s Price Is Crashing

The bullish steam that drove bitcoin to a massive 40% gain in two days has gone out the window. The buying momentum dissipated as fast as it appeared. This left many traders scratching their heads. How can one asset switch from bullish to bearish this quick?

I did some digging and discovered three solid reasons why bitcoin is suddenly in a downward spiral.

1. The Big Players Were Net Short

Bitcoin is a relatively tiny market compared to other traditional assets such as stocks, bonds and commodities. At a valuation of $130 billion, its market capitalization is significantly lower than the market cap of big tech companies such as Apple or Amazon. The price of the dominant cryptocurrency is easier to influence than other assets.

Trader Majin echoes this view. The analyst told CCN,

[It is] easier to relatively control this [cryptocurrency] vs the huge global regular finance market.

That’s why it came as no surprise that hedge funds were net short on the week of Nov. 12. A report by The Block revealed hedge funds that traded the CME bitcoin futures product shorted the top cryptocurrency to the tune of over $50 million, an all-time high.

3 Fundamental Reasons Bitcoin’s Price Is Crashing
Short positions were at an all-time high. | Source: The Block

If the big boys were net short, it’s very likely that they’re not buying bitcoin in spot markets throughout this selloff. It’s possible they’re dumping bitcoin to supercharge the selling pressure. As of press time, bitcoin is trading around $7,000. This means that hedge funds are sitting on deep profits from the Nov. 12 bitcoin price of $8,806.

2. Miners Add to the Already Overwhelming Selling Pressure

Last week, bitcoin’s mining difficulty dropped and the hash ribbons inverted. These signals indicated miner capitulation. When miners capitulate, they tend to turn off their rigs and sell their bitcoin holdings to pay for overhead costs and cut their losses. The process adds a ton of selling pressure to the market.

Samson Mow, CSO of Blockstream, was quick to point out that the daily increase of 1,800 BTCs in circulation due to block rewards is driving prices lower. At the current price of $7,000, buyers need to absorb over $12.6 million just to keep the price stable.

3 Fundamental Reasons Bitcoin’s Price Is Crashing
It takes millions of dollars to maintain the Bitcoin network. | Source: Twitter

Buyers need to step up big time if they want to stop the bleeding. Until they do, we can expect bitcoin to continue slumping.

3. Retail Traders are Selling for Tax Purposes

We are about a month away from closing 2019. This means that it is almost time to file for year-end taxes. If you’re a bitcoin investor who absorbed losses this year, it would be a wise move to take the loss and use it as a tax shield.

Tuur Demeester, founder partner of Adamant Capital, believes that this could be one of the reasons why bitcoin is in a free fall.

3 Fundamental Reasons Bitcoin’s Price Is Crashing
Why HODL when you can sell and file it as a capital loss | Source: Twitter

Based on these three reasons, it appears that the selloff won’t be over anytime soon.

Disclaimer: The above should not be considered trading advice from CCN. The writer owns bitcoin and other cryptocurrencies. He holds investment positions in the coins but does not engage in short-term or day-trading.

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