Many investors who had bought Bitcoin during its all-time highs sold at a loss. On May 12th, there began a growing process of entry of Bitcoin into exchanges.
According to data from Coin Metrics, Elon Musk and the government of China contributed to the recent collapse in Bitcoin’s price. Tesla’s CEO tweeted that they would stop accepting the cryptocurrency as payment for their electric cars. China announced that it would tighten regulations on transactions with Bitcoin within the country.
The firm’s analysts explain how the massive liquidation process that led to the recent crash in the cryptocurrency’s price got underway.
In the network’s latest status bulletin, Coin Metrics states that the Bitcoin net inflow to exchanges began an upline 2 weeks ago. That happened shortly after Elon Musk announced that he would not accept Bitcoin as a medium of payment for Tesla’s electric vehicles.
From that moment, exchanges began to receive a relatively higher amount of Bitcoin deposits than withdrawals.
“On May 19th, net foreign exchange inflows reached their highest level in years,” according to the analysis. It indicates that there was a “cascade liquidation” that led to the drop in the price to USD 30,000. In that way, investors had started a massive transfer of their Bitcoin to exchanges.
That entry of Bitcoin into exchanges indicates that some investors were transferring to sell or exchange for stablecoins. Coin Metrics highlights that the entry of BTC benefited the Binance platform the most. Meanwhile, the Huobi exchange experienced the highest number of withdrawals.
Binance is not based in mainland China, unlike Huobi, which is a sign of the pressures that these platforms experience. This situation forced investors to move their capital abroad.
The amount of Bitcoin that entered Binance began to increase substantially from the middle of May, exceeding 4,000 BTC. The opposite happened at Huobi, where investors withdrew around 2,000 BTC on the same date.
“This attack against Chinese exchanges and trading could be another factor in the change looming on the Bitcoin network. [That would only happen] if that supply finally leaves China and reaches other hands,” says Coin Metrics.
Extreme Fear Also Leads Bitcoin Holders to Capitulate
The selling pressure that started in China contributed greatly to the drop in price of the past week. However, the sell-off was already underway much earlier.
“It all started after Elon Musk’s first announcements,” says Coin Metrics. They add that, although Tesla’s owner clarified his decision not to accept Bitcoin as payment for the electric vehicles. He said that the company had not sold any of its Bitcoin but “the mass liquidation had already begun.”
According to the report, the number of “revived bitcoins” began to grow after May 12th. They use this term to refer to those bitcoins that had remained on the network for 90 to 180 days. The reactivation of the offer of these bitcoins started from that date. For that reason, investors would probably buy “much of the supply that flowed to exchanges between December 2020 and May 2021. They purchased a large portion of it after February.”
Many bitcoiners sold at a loss, taking into account that most of them had bought Bitcoin when its price was at its all-time highs (from USD 50,000 to USD 64,000).
Fear may have been the reason that led the holders of these cryptocurrencies to capitulate. According to the Fear and Greed index, investors’ position on the cryptocurrency reached a point of “extreme fear” after Musk’s tweets.
By Alexander Salazar
