Bitcoin (BTC) price fell by a whopping 16% to $16,334 on Nov. 26 since achieving its peak at $19,484 the previous day. Data suggests that cascading liquidations were the driving force of the massive correction.

Prior to the pullback, the open interest of the Bitcoin futures market hit a new record high. The derivatives market was also overheated with buyers, causing the market to sway to one side.

BTC futures volumes. Source: Cointelegraph Markets, Digital Assets Data

The combination of two factors triggered a rapid BTC price drop alongside a spike in futures trading volume.

Over a billion dollars worth of futures contracts were liquidated, similar to the March 12 crash. The Chicago Mercantile Exchange, for example, saw $1.8 billion in volume — its highest ever, according to Skew.

What triggered the cascade of liquidations?

As the price of Bitcoin started to drop, inflows into exchanges spiked. This indicates that whales, or high-net-worth investors, were selling heavily on major exchanges, including Coinbase.

All Bitcoin Exchange Inflow Mean. Source: CryptoQuant

Ki Young Ju, the CEO of CryptoQuant, pointed out that the All Exchanges Inflow Mean indicator was showing the selling pressuring coming from whales.

Initially, the sell-off from whales caused the price of Bitcoin to drop to around $18,000. But, because there was likely a large number of overleveraged long contracts, it led to a massive long squeeze.

Within several hours, Bitcoin declined to as low as $16,334, posting a March-like crash. Data suggests that nearly $1.9 billion worth of futures contracts were liquidated on the day.

According to Glassnode, an on-chain market data analysis firm, Binance Futures saw the largest spikes in liquidations of $425 million in just two hours at 3 am and 8 am UTC.

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Hourly liquidations of long positions on #Binance:

– $262M at 3am UTC
– $163M at 8am UTC#Bitcoin pic.twitter.com/iVmD4TXCpZ

— glassnode (@glassnode) November 26, 2020

Massive price swings following a minor initial pullback were largely expected because of the high funding rates. The market has been overwhelmingly long on buying BTC since early November, which increased the risk of a sharp BTC correction.

What happens now?

Order books of major exchanges were obliterated and as a result, the cryptocurrency market saw a massive short-term correction.

There are three potential scenarios for Bitcoin in the near term. First, it could recover relatively quickly to $18,000. Second, it could continue declining to the next major support area at $13,700. Third, it could range, allowing the derivatives market to stabilize.

But, there is one concerning metric. Glassnode found that the number of Bitcoin whales has hit a new all-time high.

This means that there is still large potential selling pressure that could come from high-net-worth investors. The analysts at Glassnode said on Nov. 25:

“The number of Bitcoin whales (entities holding at least 1,000 BTC) has reached a new ATH after more than 4 years. An entity is a cluster of network addresses controlled by the same individual/institution.”

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