The Bitcoin (BTC) market has witnessed a notable decline over the past day, with its price dropping below the crucial $70,000 mark. After hitting a pinnacle of $73,620 earlier in the week, the cryptocurrency’s value has diminished by about 5.7%, reaching a low of $68,830. This downturn is attributed to several influential factors:
Risk-Off Sentiment Ahead of US Election
The timing of Bitcoin’s price reduction corresponds with a narrowing gap in prediction markets between former President Donald Trump and Democratic candidate Vice President Kamala Harris. These markets, including platforms like Polymarket and Kalshi, allow users to bet on election outcomes. Historically, Bitcoin has been viewed as a protective asset in the context of Trump’s advocacy for cryptocurrency.
Donald Trump has expressed plans to establish a “strategic Bitcoin reserve” in the United States if re-elected. At the Bitcoin 2024 Conference, he proposed retaining all Bitcoin currently held or acquired by the US government as a strategic reserve, positioning the US as a global leader in the cryptocurrency sphere.
Earlier in the week, Bitcoin approached its all-time high of $73,777 when Trump’s lead over Harris was more pronounced. The narrowing of this lead has seemingly prompted investors to adopt a risk-averse approach, thereby impacting the cryptocurrency’s price.
Historical Trends and Analyst Insights
Crypto analyst HornHairs highlighted the historical trend of derisking before elections. He noted that similar patterns occurred in the 2016 and 2020 elections, where the market experienced a pullback a few days before the election, followed by a recovery post-election. “Be cautious about selling in this environment,” he advised.
S&P 500’s Impact on Bitcoin Prices
The correlation between Bitcoin and traditional financial markets, particularly the S&P 500, has also played a role in the recent price movements. The S&P 500 has fallen to its lowest level since early October, possibly affecting investor confidence in the crypto market.
According to analysts from The Kobeissi Letter, despite strong earnings reports from major tech companies like Apple, their stock prices have declined. They observed widespread selling in the tech sector, including Meta and Amazon, despite exceeding earnings expectations. This trend of de-risking is anticipated to continue leading up to the election, contributing to heightened market volatility.
Market Observations
Crypto trader Marco Johanning expressed concerns about the S&P 500 losing its three-month trendline. He suggested that the current market behavior might indicate a potential sell-off leading up to the US election, with a focus on maintaining prices above key levels.
Leverage Flush Out and Market Correction
The unwinding of leveraged positions has also been a significant factor in Bitcoin’s price decline. The market correction appears to be a natural response to an overextended scenario driven by leverage.
Renowned crypto analyst Miles Deutscher commented on the pullback, stating, “This decline is normal and was anticipated. The market appeared overextended recently, largely driven by leverage. However, I am not making heavy purchases until a more substantial correction occurs.”
Austin Reid from FalconX noted that the crypto derivatives market was highly active, with futures open interest for BTC, ETH, and SOL reaching unprecedented levels. On-chain analyst Axel Adler Jr reported a reduction in open interest by $2.1 billion, indicating a notable leverage flush out.
According to Coinglass data, over 93,864 traders were liquidated in the last 24 hours, with total liquidations amounting to $286.73 million. The largest single liquidation occurred on Binance’s BTCUSDT pair, valued at $11.26 million. For Bitcoin alone, $81.38 million in long positions were liquidated, marking the highest amount since the start of October.
At the time of writing, Bitcoin is trading at $69,446.
