Lorenzo Stroe
Independent Analyst
- Bitcoin is currently trading at $11,714 after a brief recovery from its flash crash.
- This is the second time Bitcoin experiences a crash after reaching above $12,000.
Bitcoin has now basically transformed the previous $10k resistance level into $12k. The first flash crash happened on August 2 with Bitcoin peaking at $12,123 and dropping to $10,518 in minutes. The initial cause of this dump was a large trader placing several big orders on Binance’s quarterly futures contract causing the price of Bitcoin to reach almost $100,000 before quickly dropping back. At the same time, this caused a massive bot-selling fest that drove the price of Bitcoin towards $10,000.
What are the causes of a flash crash?
One of the most common causes of a flash crash is the lack of liquidity, this usually happens with low market capitalization coins that have really low trading volume, however, at the same time, Bitcoin is considered illiquid for big players. This time around, some news outlets are reporting the event as Bitcoin ‘filling a Futures gap’, however, that’s not what caused the move, of course.
Because Bitcoin already had a flash crash before just after reaching $12,123 which means a lot of traders were looking at $12,000 as a strong resistance level. According to BTCtools, the number of long Bitcoin positions on BitMEX is highly outweighing the shorts. Currently, it stands at $710 million (92%) vs $61 million (8%). This means that any selling pressure is likely to cause a long squeeze even if it’s not a big one, which is exactly what happened.
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