The Bitcoin (BTC) price fell sharply from $37,800 to $35,000 overnight, liquidating cryptocurrency futures bets worth $572 million.
There are three key reasons why Bitcoin values have dropped sharply in the past 12 hours. The causes for this are an overheated demand for options, increasing market concerns, and the lack of upside flexibility.
Before the pullback occurred, the Bitcoin derivatives market was extremely overheated. The futures funding rate was hovering at around 0.1%, which is 10 times higher than the average 0.01%.
If the demand has longer contracts or customers, so the funding rate becomes positive. If it becomes optimistic, so every eight hours, buyers must reimburse short-sellers for a part of their contracts, and vice versa.
There is “trader doubt” on the market, according to analysts at Santiment, as to whether BTC will again hit $40.00. They’ve written:
There is a growing amount of skepticism among traders that #Bitcoin is going to revisit $40,000. Yet, based on the activity and amount of trade, the long-term pattern also looks very positive. Keep a close eye on whether the utilization rate of $BTC remains funded.
Bitcoin has been seeing weak reactions from buyers throughout the past several days, compared to the initial rally to $42,000 in early January.
During the early phase of the rally, whenever Bitcoin dipped to key support levels, like $35,000, there was often a big reaction from buyers.