Bitcoin price reduction this week was expected, but the speed with which this happened was for many an unpleasant surprise.
According to the report of the analytical company CryptoQuant, such a sharp drop in the bitcoin exchange rate can be largely due to positions on the BitMEX crypto derivatives exchange for the amount of about $ 700 million, which were liquidated during the price dump.
Outflow / outflow indicators on crypto exchanges are widely used as one of the key indicators for predicting the behavior of the bitcoin price, but the standard inflow / outflow model is not very suitable for BitMEX – while deposits (only in bitcoin) are available around the clock, funds are withdrawn only once during the day.
During this limited period of time, the outflow, as a rule, exceeds the inflow by several times. After that, there is a shortage of liquidity and an increase in the spread. This feature leads to the fact that margin positions on BitMEX are subject to liquidity shortages and cascading liquidations. When the outflow of bitcoins on BitMEX exceeds a certain point, the potential of these large movements increases significantly. Analysis of the CryptoQuant Bitcoin blockchain shows that with the withdrawal of more than 5000 BTC in one day, the probability of this volatility increases many times.
In the graph below, you can see that there is a correlation between price volatility and outflows. At each of these dates, price volatility occurred for a short period after the daily withdrawal of BitMEX at 13:00 UTC.
The price of bitcoin quickly responded to liquidity shortages. According to CryptoQuant, on September 24, 49,147 BTC (!) Were withdrawn from the BitMEX wallet. Volatility followed over the next 5 hours (during this period, the price of bitcoin fell by 16%).
Analysts conclude that although a large outflow of funds usually signals impending volatility, it does not give an accurate idea of the direction this volatility will lead. On September 24, the market was in favor of shorts (for which longs were paid).