‘Who was selling what?’ Not HODLers’ — New data points to a ‘culprit’ in the Bitcoin fall amid leverage wipe-out.

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A traditional contrast between hodlers and leveraged traders distinguishes this week’s Bitcoin price drop from the March 2020 coronavirus meltdown.

According to one analyst, Bitcoin (BTC) dropped by $9,000 in hours on Tuesday due to a massive unwinding of leveraged traders and borrowers.

Willy Woo attempted to get to the bottom of what caused BTC/USD to plummet to lows of $42,800 on Tuesday in a series of tweets on Wednesday.

Woo: Bitcoin margin borrowers and open interest may be to blame

With theories circulating about who was behind Bitcoin’s huge price drop, analysts have begun crunching data to figure out where the rout started.

There are many parallels to the March 2020 incident, which was caused by coronavirus measures, but Tuesday’s occurrence was markedly different, according to Woo.

“Leverage markets sold off but investor buying just got stronger,” he summarized.

“BTC flash crashes are caused by deleveraging, the COVID crash was similar in that derivatives overreacted, but back then it was supported by investors. This one was completely divergent and a mystery. Cheap coins.”

Woo subsequently suspected that the dip came as a result of margin borrowing and open interest. In a classic domino effect, positions unwound to produce a “cascade” of liquidations and a positive feedback loop, which severely impacted spot price.

“Healthy cleansing”

While the procedures involved may be complicated to the casual observer, the strength of Bitcoin’s rebound and continuous investor buy-ins show that the event did not include cold feet among hodlers.

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According to the on-chain monitoring resource Whalemap, the vast majority of sell-side pressure came from large-volume investors who were new to the market.

“So yesterday we had a sell off. The move was quite violent and large volumes of Bitcoin were being sold off on spot markets, researchers tweeted alongside a chart showing where those parties had acquired BTC.

“But who was selling? Not HODLers. Mostly whales and in fact the ones that bought their btc only quite recently.”

Bitcoin whale outflows annotated chart. Source: Whalemap/Twitter

For fellow analyst William Clemente, meanwhile, Tuesday provided a welcome reset of frothy derivatives markets.

“Investor activity strengthening + Leveraged speculators wiped = healthy cleansing,” he concluded alongside Woo’s findings.

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