The price of Bitcoin (BTC) dropped by 7% in less than two hours, liquidating over $100 million worth of longs on Sep. 3. On BitMEX alone, the sudden drop wiped out nearly $99 million worth of longs.
Three key factors likely caused the Bitcoin price to drop: miner outflows, the strength of the U.S. dollar, and major resistance.
As reported earlier today, large-scale mining pools are sending higher-than-normal amounts of BTC to exchanges in recent days.
Bitcoin outflows across major mining pools. Source: CryptoQuant
The data indicated that miners were preparing to sell their Bitcoin holdings, which added selling pressure to the markets. Ki Young-Ju, the CEO of CryptoQuant, wrote:
“Miners send a certain amount of BTC to exchanges periodically, so they already have a large amount of BTC in the exchange. Whenever they decided to sell, it seems they move a relatively significant amount of BTCs to other wallets, and some of them are going to exchanges.”
Miners represent one of the two sources of external selling pressure in the Bitcoin market other than exchanges. When miners begin to sell their holdings, it could cause significant pressure on BTC.
U.S. dollar rally
Throughout the last three days, the U.S. dollar has rallied against other reserve currencies. The dollar showed particularly strong momentum against the euro.
As Cointelegraph reported, the European Central Bank (ECB) warned the euro has become too expensive. The ECB’s warning rattled the markets, causing a euro sell-off as investors feared the imposition of restrictions.
As the dollar began to rally from a multi-year support area, both Bitcoin and gold declined sharply.
BTC was at strong resistance
The $12,000 to $12,500 range has acted as a strong area of resistance for Bitcoin since 2018.
The daily price chart of Bitcoin. Source: TradingView.com
The BTC price tested the $12,000 resistance level for the fourth time in a relatively short period. That might have led to a reaction from sellers, contributing to the pullback of Bitcoin.
But the price of Bitcoin dropped to as low as $10,625 across major exchanges. Salsa Tekila, a well-known pseudonymous trader, said it is a major support level at a higher time frame, which suggests that a bounce is likely in the near term.
Where do traders see BTC heading?
In the near term, traders generally foresee a rebound to $11,200. A decline from $11,200 would confirm the level as a strong resistance area while reclaiming it would signal bullish continuation.
Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said:
“The breakdown occurred and we reached the next level. That was a painful drop for me too, but I'm not going to cry in a corner. Expecting a relief rally towards $11,200 to occur in which alts make a bounce too. However, $11,200 is crucial threshold.”
A cryptocurrency trader Scott Melker said an ideal scenario would be a minor drop followed by a firm recovery. He said:
“My ideal $BTC trade here would be a pause in the drop, an RSI reset on the 4-hour from oversold, another drop showing RSI making a higher low and then an absolute rip on an oversold bull div.”