Bitcoin (BTC) remained near its two-month low as Wall Street opened Aug. 18 as markets grappled with extreme liquidations.
“Drying Up Liquidity” Costs Key BTC Price Support
Data from Cointelegraph Markets Pro and TradingView showed BTC price action moving sideways after a single daily candle caused an 8% loss.
The largest cryptocurrency saw a cascade of liquidations in the derivatives markets, with these accounting for an “outsized” majority on relatively weak spot sales.
“With Deribit, it is likely that a large account has been deleted considering the immense short liquidation that took place together,” trading firm QCP Capital wrote in a market update sent to Telegram channel subscribers that day became.
Composite chart of bitcoin liquidations. Source: QCP Capital
QCP, along with others, noted that the market’s reaction to the alleged trigger – a write-down of SpaceX’s $373 million in BTC holdings – appeared overdone.
“This brought back the ghosts of the Elon-driven ups and downs of 2021 and 2022, and we certainly hope the market doesn’t fall back to those times again,” it said, referring to previous bitcoin sales and accompanying comments from Elon Musk, co-CEO of SpaceX and Tesla.
Total liquidations surpassed those seen immediately after the FTX exchange collapse – the event that caused BTC/USD to fall to a two-year low of $15,600 in November 2022.
“This appears to be another sign that liquidity markets have dried up in recent weeks,” financial commentary source The Kobeissi Letter added in part of its own response.
Analyst: Spot sales volume still down 50% from 2023 peak
As BTC price slowly headed towards $26,000, market participants were divided on the true nature of the situation and its future implications.
Related: How low can bitcoin price fall?
For popular trader and analyst Rekt Capital, the picture was bleak – a double top formation for BTC/USD in 2023 and a complete lack of support from trend lines and moving averages during the collapse.
“BTC made its higher peak around $31,000 as volume increased. But price formed the second half of its double top on declining volume,” he wrote in multiple X-posts.
An accompanying chart showed trading volume on the daily time frame, as Rekt Capital warned that the capitulation is unlikely to have matched previous sell-offs.
“Although there was a small burst in seller volume in this crash…it’s still nowhere near the levels of seller exhaustion volumes (green box) of previous BTC reversals (yellow circles),” he explained.
“In fact, current seller volume would likely need to double to match the seller exhaustion volume level that caused price reversals in early and late March and mid-June.”
Annotated BTC/USD chart. Source: Rekt Capital/X
Others were more optimistic, including trader CryptoCon, who identified two key accomplishments that are common for a successful BTC price rally during a bull market retracement.
These were Relative Strength Index (RSI) readings that rallied to the 0.382 Fibonacci retracement level.
“Each cycle, the weekly bitcoin RSI fakes from the starting line of the bull market, with some lasting longer than others,” he explained.
“And each of them revisits the .382 Fibonacci retracement level of the move. With the latest drop, both are now complete.”
Annotated BTC/USD chart with weekly RSI. Source: CryptoCon/X
Rekt Capital noted that the daily RSI has now reached its highest “oversold” level since June 2022, having been surpassed in only two episodes in Bitcoin’s history, both in bear markets.
Meanwhile, looking ahead, QCP flagged comment from Federal Reserve Chairman Jerome Powell next week as the next potential source of volatility.
“We believe much now depends on Powell’s speech in Jacksonville next week,” it concluded.
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