Bitcoin's drop below $40K triggers $3 billion in liquidations, putting it on track for its worst month in three years.

 

Bitcoin fell for the fifth day in a row, bringing the largest cryptocurrency's May losses to 34%, the biggest in a single month since November 2018.

The full-fledged sell-off rattled the bitcoin derivatives market, resulting in more than $3 billion in position liquidations owing to margin calls.

The bitcoin (BTC, -14.81 percent) price was about $38,710 at press time, the lowest since February 7 — shortly before Tesla CEO Elon Musk's tweets sent the cryptocurrency's price surging. In April, prices reached a new high near $65,000, and recent comments by Musk expressing concern about bitcoin mining's environmental impact seems to have contributed to this month's sell-off.

Early Monday, the top cryptocurrency fell below its 200-day simple moving price average (SMA) of $39,825, a critical level of support. For the first time since April 29, 2020, the average has been used. The long-term technical line was roughly $7,977 at the time.

According to data provider Messari, while bitcoin has lost 15% in the last 24 hours, other top 10 cryptocurrencies such as ether (ETH, -24.87 percent ) (ETH), internet computer token (ICP), Binance token (BNB), Cardano (ADA, -25.99 percent ) (ADA), and XRP (-23.97 percent ) (XRP) have lost more.

According to statistics from bybt.com, exchanges offering crypto futures have liquidated $3 billion worth of contracts amid market-wide risk aversion. Bitcoin futures are responsible for over half of all market liquidations.

However, the total liquidations seen in the last 24 hours are still just a third of the $10 billion in forced closures recorded on April 17, when bitcoin plummeted from $60,000 to under $10,000. With the exception of a spike on April 12, the market has typically seen daily liquidations of less than $4 billion since then.

The recent drop from $55,000 to below $40,000 is mostly due to increased selling in the spot market, according to the statistics. According to data given by Glassnode, the amount of bitcoins stored on exchanges has increased by more than 65,000 BTC in the last seven days. When investors want to sell their coins, they move them to exchanges.

The first leg of the continuing decline, from $60,000 to $52,000 in mid-April, was mostly attributable to the record liquidations. Longs were forced to close, adding to the bearish pressures around the coin, resulting in an exacerbated price decrease.

What does the future hold for bitcoin?

As technical indicators show oversold circumstances, the correction may soon run out of steam. Furthermore, the order book is displaying signals of capitulation, which occurs when traders attempting to enter long positions give up.

“We are approaching negative capitulation,” crypto research firm Jarvis Labs wrote on Medium early Wednesday, pointing out the comparatively low concentration of leveraged longs at deeper price levels on Binance, the world's largest crypto exchange by trading volume.

“The 25x leveraged longs are represented by the pink bubbles buried underneath the price. Red bubbles are 50x longs, which are rare, and yellowish-orange bubbles are 100x longs, which are almost non-existent,” according to the medium post. “Bubbles over the price line are displaying a big number of 25x shorts, as well as 50x and even 100x shorts.”

Capitulation is typically regarded as the last stage of a price decline.

Analysts, on the other hand, are split on whether the market has bottomed out. The market, according to Patrick Heusser, head of trading at Swiss-based Crypto Finance AG, required a correction, and prices might consolidate at lows before going upwards.

The drop to the 200-day SMA, according to Stack Funds' COO and co-founder Matthew Dibb, is nothing out of the usual, but a further slide to $30,000 is possible.

Bitcoin has taken a beating in the last week, plummeting from above $50,000 to 3.5-month lows below $40,000.

The intersection of "Elon's corporate ESG stamp of disapproval, the SEC's public un-enthusiasm for any ETF, and the CME backwardation" sucked out BTC enthusiasm last week, according to QCP Capital's Telegram channel.

Late Sunday, Tesla CEO Elon Musk attempted to ease market worries by announcing on Twitter that the business had not sold its bitcoin holdings. But, so far, this hasn't been enough to put a floor under the cryptocurrency.