Bitcoin Price Plunges Below $10,000, Catching Long Traders Off Guard

Key highlights:

• Both long and short traders were caught off guard during Bitcoin's recent spike in volatility
• BitMEX saw spikes in both buy and sell liquidations within a 24-hour window
• BTC failed to make significant gains above $10,000 for the third time in a row

Bitcoin's recent trip above $10,000 was short-lived

Many cryptocurrency traders were caught off guard yesterday as the price of Bitcoin nosedived after staying above $10,000 for almost an entire day. Since the drop, Bitcoin has been trading sideways around the $9,500 level. 

Bitcoin’s drive above $10,000 could have very well been the result of a short squeeze. A short squeeze is a term used to describe sudden upwards price movements that are caused by short sellers who are forced to liquidate their positions. This drives the asset’s price higher and puts pressure on other traders to cover their shorts as well, creating a cascading effect.

Spikes in liquidations

According to analytics platform Skew, BitMEX saw $133 million in buy liquidations on its Bitcoin futures contracts during the upwards move. A buy liquidation happens when a short position is automatically closed when the price of the underlying asset moves above the liquidation price. 

Conversely, yesterday’s sudden price drop was accompanied by $96 million in sell liquidations as long traders were forced to sell. 

Image source: Skew

On BitMEX, the price action was even more extreme than elsewhere – the exchange’s flagship XBT/USD contract fell all the way to $8,600 before rebounding. 

The price action seems to support the idea that Bitcoin’s surge above $10,000 was driven primarily by leveraged trading and not by fundamental factors.

Yesterday’s move was Bitcoin’s third consecutive attempt over $10,000 where the world’s top cryptocurrency couldn’t make any significant further gains. The previous attempts came in September 2019 and February 2020. 

BTC’s sudden price drop also had an effect on the rest of the cryptocurrency market, with coins across the board posting similar losses. Most assets in the cryptocurrency top 10 are down about 5% in the last 24 hours.