On that day, the price of the pioneering cryptocurrency went from USD 52,700 to USD 42,900. Following a quick rebound, the value of Bitcoin value has fluctuated around USD 46,000 in recent days.
The latest sharp drop in the value of Bitcoin occurred amid the entry of Bitcoin as legal tender in El Salvador. A series of downward price movements in the early morning preceded steep falls of up to 16.9% compared to the initial value.
An analysis by CoinMetrics states that the decision made by El Salvador may have influenced the initial declines in the price of BTC. However, the study indicates that the reason was a rapid succession of liquidations of heavily leveraged futures positions.
The amount settled on September 7th was more than USD 2.3 billion, the highest since May 19th.
The Price of Bitcoin Drops by Almost USD 10.000 in a Day
The value of BTC went from USD 39,300 on August 1st to more than USD 52,000 on September 6th, the analysis notes. However, the markets fell sharply on September 7th while the price of BTC dropped by almost USD 10,000 to USD 43,200.
The study explains that liquidations of long positions can force exchanges to sell. In other words, there are cascading liquidations that cause sharp movements in the spot price.
The futures contract markets for Bitcoin and other cryptocurrencies typically allow high levels of leverage. However, FTX and Binance recently cut those distributions of capital from 100x to 20x.
According to the analysis, those reductions did not have a great influence on the number of leveraged futures contracts. Open futures interest had risen to the levels in May prior to the crash on September 7th.
Long Position Liquidations Cause the Recent Drop in Price
Bitcoin market analyst Will Clemente confirms that the liquidations were the first cause of the market crash. In his most recent market newsletter, he says there were liquidations of USD 1.23 billion worth of long positions.
The expert further highlights that the sales of young coins predominated and that long-term holders (LTH) did not sell. The whales bought 44,393 BTC in recent days, while there was a boost in those purchases on September 7th.
The Market Crash Does Not Stop the Bullish Trend of Bitcoin
Clemente believes that the recent market crash does not invalidate the market structure or the bullish outlook for Bitcoin. He explained that accumulation trends have strengthened as the inventories on exchanges have dropped by 25,733 BTC.
Willy Woo agrees with Clemente about the purchases of BTC by the whales this week. He believes that the recent decline in the price of Bitcoin was not due to sales of BTC by the whales.
The price of BTC has fluctuated lower in recent days, showing a slight recovery after hitting a low of USD 44,400. Right now, the cryptocurrency is trading at around USD 45,745 and has achieved a 1.1% growth in the last 24 hours, according to CoinGecko.
By Alexander Salazar