Bitcoin’s remarkable rally targeting its all-time high of $69,000 came to an end after the price of the crypto king started to retreat once it hit $64,000.
On Wednesday, February 28, BTC experienced a rapid surge that propelled it above the $60,000 mark for the first time since November 2021, only to plummet by 7% to $59,400, leaving investors with more questions than answers.
Bitcoin hit a high of $64,037, which was only about 10% down from the all-time high of two years ago. Despite its price bouncing back to over $61,000, another wave of sell-offs pushed it down to the $59,000 level.
However, the community is optimistic about Bitcoin’s prospects.
There are several reasons why Bitcoin crashed after rallying to $64,000 and we will take a brief look at them in this article. But first, let’s highlight the actors propelling the apex cryptocurrency.
BTC Skyrockets on the Back of Spot Bitcoin ETFs and Upcoming Halving Event
February marked Bitcoin’s biggest monthly rise since December 2020. The leading crypto asset’s price surged by a staggering 42% last month. This remarkable surge could be largely attributed to the spot Bitcoin exchange-traded funds (ETFs) – approved by the US Securities and Exchange Commission (SEC) on January 11, 2024 – attracting large capital inflows into the market.
The financial product backed by BTC allows institutional and retail investors to get exposure to the price movements of the world’s largest cryptocurrency without actually having to hold the asset themselves. Shares of the ETF are traded on traditional stock exchanges, which makes it much easier for investors to participate in the crypto market.
ETFs from leading asset management companies, including BlackRock, Fidelity, and Grayscale witnessed record surges in trading volumes since their debut, resulting in Bitcoin closing the gap to Silver’s $1.274 trillion market cap.
As of press time, Bitcoin’s market capitalization stands at $1.207 trillion.
Just this week, nine of the listed spot Bitcoin ETFs broke the record for daily trading volumes twice in two days. On Tuesday, February 26, the newly launched ETFs brought in $577 million in net inflow. This is the largest single-day flow recorded by the funds since the previous day when it attracted $520 million in daily flows.
It is estimated that the overall Bitcoin ETF market holds 3.5% of all Bitcoin in existence. As of market close on Thursday, the 11 ETFs hit $7.6 billion in trading volume.
Then there is the once-in-four-years ‘halving’ event that is coming to the Bitcoin blockchain. The event, scheduled for April, happens automatically once 210,000 blocks are created on the network as part of the mining process.
During the halving, the reward miners get for creating blocks on the network is cut in half. Currently, it stands at 6.25 BTC per block mined, and post-halving this will reduce to 3.125 BTC.
The post-halving correction is viewed as a bullish event for Bitcoin and the market tends to accumulate the maximum number of tokens before it occurs, increasing its value and demand while reducing supply.
$700 Million Wiped Out from the Market Following Bitcoin’s Downtrend
Bitcoin’s unexpected 7% plunge has already affected the rest of the market. Major cryptocurrencies such as ETH, SOL, XRP, ADA, DOGE, and AVAX, dropped 4-9% within hours of BTC losing momentum.
The main contributor to the sell-off was the culmination of $700 million in liquidations across all digital assets within 24 hours. The mass liquidation has resulted in leveraged derivatives trading positions facing closure.
The scale of liquidations witnessed this week was comparable to the wipeout that occurred in August 2023 when Bitcoin suddenly dropped to $25,000 and liquidated $1 billion in derivatives positions in the process.
Approximately $274 million worth of Bitcoin was liquidated in the last 24 hours, affecting both long and short positions. Meanwhile, Ethereum came second with $116.08 million in liquidations, followed by Dogecoin at $50.68 million, and Solana at $28.31 million.
Coinbase Outage Disrupts Trades
Bitcoin’s latest crash can be attributed in part to the outage experienced by Coinbase, one of the leading cryptocurrency exchanges in the world. Users found themselves unable to access their accounts, forcing the platform to temporarily halt trading, which led to a significant loss in market sentiment and triggered a mass sell-off event.
The halt slashed $100 billion off of Bitcoin’s market cap within the space of 15 minutes. Coinbase’s outage on February 28 between 12:15 ET and 12:30 ET caused BTC to plunge nearly 9%. This pullback was instrumental in disrupting BTC’s move to setting a new all-time high as it crashed from $64,000 to $60,000.
As of now, Coinbase has resolved the issue but the volatility it created in the market is a reminder of how fragile the ecosystem is.
Anticipation of US Inflation Data
Some investors tend to pause activity in the market ahead of the release of US inflation data. Given that the inflation number, as seen in the Consumer Price Index (CPI) and Producer Price Index (PPI), is higher than expected, concerns have been raised that the Federal Reserve could turn around on its decision to cut interest rates on the US dollar.
This economic slowdown has also seemingly affected the crypto market. However, economists predict a slight cooling in the annual Personal Consumption Expenditures (PCE) inflation from 2.6% to 2.4%. The Core PCE, which interests the Fed, is expected to climb 0.4% monthly, while the yearly rate is forecasted to ease from 2.9% to 2.8%.
Optimism Remains High for Bitcoin
Despite the concerns surrounding the market, traders are optimistic that it can recover from the losses as shown in the data shared by CoinGlass, which said Bitcoin Futures Open Interest surged by 4.67% to $27.87 billion in BTC.
Meanwhile, Bitcoin has managed to recover some of its late losses and is currently trading at $61,471 – down nearly 1% in the last 24 hours.
