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Bitcoin suddenly dropped by 3% before marking $50,000; Know the reason behind the drop.
Yesterday, the price of Bitcoin was reaching new heights marking a price of more than $49k, and today it saw a sudden drop of nearly 3%.
At the time of writing, the market price of Bitcoin has reached $47,619 by a decrease of 2.93% in 24 hours. On February 14, 2021, Bitcoin was supposed to go to its new all-time highs at $50,000 as it was already at the mark of $49,716. The reason for its increasing price was said to be the increased investment by the institutional community. Several high profile Wall Street investors, namely, Paul Tudor Jones and Stanley Druckenmiller, have embraced Bitcoin along with Morgan Stanley and Bank of New York Mellon.
Bitcoin was set to reach $50,000, but it suddenly dropped by nearly 2.93% today. This drop has surprised the investors. Let us try to find out the reason behind this sudden drop. The first reason could be the stress of funding, and the second could be the less investment by institutions.
Talking about the funding stress, this drop of Bitcoin can be seen as a funding reset that was much needed for its sustained movement above $50,000. On Sunday, the funding rate rose by 0.109%, which indicated the bullish trend in the market. By the end of this January, the funding rate started to climb and was surging continuously. It can be seen that the rally below $40,000 was driven by leverage on derivatives. Besides Bitcoin, other altcoins such as LINK, ADA, XLM, and XRP also suffered price drops in this session.
Another reason was the decreased demand by institutional investors, which is evident by the negative analytics firm CryptoQuant yesterday. Notably, the indicator is used to measure the spread between Binance’s BTC/USDT pair and Coinbase Pro's BTC/USD pair. If the spread is positive, it indicates the inflow by institutional investors and if the spread is negative, it suggests the outflow by institutional investors. Bitcoin’s rally was primarily fueled by the institutions and the high net worth individuals. For four months, the currency was traded at $100 at Coinbase premium.
According to the trend, individual investors suggest the bearish trend of Bitcoin for this week. But, till the time of writing, Bitcoin has already regained the price in few hours to trade exceptionally well.