The Bitcoin (BTC) market has been extremely turbulent over the past 24 hours following a series of alarming news reports. During this period, the cryptocurrency market leader recorded notable declines with its price falling below $66,000. However, a cryptocurrency analyst with the username X Luca hypothesized that this recent price drop could be attributed to another factor beyond news events.
Bitcoin Crashes Because of Excessive Market Leverage, Not a News Event: Analyst
On Friday, the Wall Street Journal reported that Tether is under investigation by US authorities over the possible illicit use of the USDT stablecoin in money laundering, drug trafficking and terrorism, among other crimes.
Such a damaging report on USDT, which is classified as the largest stablecoin, seemed to spark bearish sentiment in the cryptocurrency market causing BTC to fall to around $66,000 before a refutation statement by Tether management. During the partial recovery, reports of an Israeli attack on Iran also ignited another downtrend forcing Bitcoin to reach a local bottom at $65,700. Overall, Bitcoin is down 4% from around $68,602 on Friday.
However, in Share X On Saturday, Luca stated that the price decline was due to high open interest and not supposed news events. The cryptocurrency analyst explains that amid Bitcoin’s downtrend, open interest also fell by 9% indicating that the market was significantly overleveraged.
According to Luca, BTC’s recent rise from $59,000 on October 10 to $69,000 on October 21 was driven by perpetual contracts with little to no immediate investment. Thus, the rally was always temporary with significant liquidations and price reversals certain to occur.
Is BTC heading to $60,000?
Regarding the high open interest in Bitcoin, Luca also mentioned that the liquidation heat map showed that significant liquidations occurred in so-called support areas as these positions experience a significant increase in leverage.
After the recent price decline, the analyst highlights that the $65,000 level, which represents a key support level, is one such high leverage area with many long positions. Luca believes that Bitcoin bulls will lose this support area if a retest occurs and Bitcoin is likely to drop to $60,000 which may now remain an effective support level.
At the time of writing, Bitcoin continues to trade at $67,001 with a 0.50% gain in the last day. At the same time, the daily trading volume of the asset decreased by 28.23% and reached $26.93 billion. With a market capitalization of $1.32 trillion, Bitcoin remains the world’s largest digital asset.
Featured image from Kinesis Money, chart from Tradingview