This weekend has not been a smooth sail as Bitcoin crashed by $1.4K in a couple of minutes, pushing the value to $10,600.
Bitcoin is not the only one affected, but Ethereum as well. Their prices dropped by 13% and 21% respectively on August 2nd. That led to a liquidation of more than $1 billion futures contract as BTC/USD plunged.
According to analysts, there may be two main reasons for the sudden drop. Generally, the cryptocurrency market volume tends to be low during weekends. There might also be a chance that there were longs or buyers in the market that led to high liquidity.
During the weekends, there are few trades executed, making the liquidity to drop. Low market volume leads to bullish price movements hence high volatility. High liquidation is likely to happen over the weekend as there may be one major liquidation that may trigger other liquidations. Once a long contract gets liquidated, it gives pressure on a buyer to market sell.
When high-value long contracts get liquidated, that automatically affects Bitcoin and Ether, dropping their prices. Bitcoin dropped from $12,000 to $10,550 in 15 minutes, while Ether dropped from $417 to $300.
This is not the first mass liquidation this year. It happened on March 13th and May 11th.
Bitcoin and Ethereum main culprits
Generally, Bitcoin and Ethereum are the most sought after cryptos. Once Bitcoin surpassed $11,000, it got a high demand. Many buyers were into Bitcoin and Ether to a level that was not sustainable anymore.
That made Futures Exchanges such as Binance to use a funding mechanism to create a balance. With the strategy, many market participants were pushed to long contracts while the short holders were given an incentive with a fee.
Long contracts dominated the market. That made the average rate of BTC to be 0.01%, while just before the drop, the funding rate was at 0.0721%.
Ether was also a victim of market imbalance. The funding rate before the drop was 0.21%, which is very bullish. Due to the liquidations, the funding rate is likely to be pushed to 0.19%.
It is highly likely that Bitcoin will be pushed to a support level of $11,300. There is, however, so much optimism on the Bitcoin price trend in the mid-term.