Data from Coin Metrics confirm that it was Elon Musk’s tweets against bitcoin (BTC) – together with the announcement of restrictive measures in China – that contributed to the biggest drop in the price of the main cryptocurrency so far in 2021.
In their most recent report, the firm’s analysts explain how the massive liquidation process that culminated in the crash of the cryptocurrency of May 19.
In the newsletter on the state of the network this Tuesday, May 25, Coin Metrics points out that the net inflow of BTC to the exchanges began an upline 14 days ago, shortly after Elon Musk announced that he would not accept bitcoin as a means of payment for Tesla vehicles.
After Tesla publicly announced a $ 1.5 billion purchase of BTC in early February, an incoming flood of retail investors helped drive the price to a nu evo historical maximum of more than USD 63 thousand. But now, many of those new entrants appear to have exited after Tesla’s change in attitude. Much of the supply that was bought in recent months due to a wave of Tesla hype is passing into stronger hands.
Coin Metrics Report.
In this way, since May 12, a relatively high amount of BTC began to be deposited in exchanges, in comparison with the amount that was withdrawn.
“By May 19, net foreign exchange inflows reached their highest level in years,” states the analysis, indicating that that day there was a “cascade sell-off” that precipitated the price drop to $ 30,000. Investors had thus initiated a massive transfer of their BTC to exchanges.
The sudden entry of BTC in exchange houses indicates that some investors were transferring with the intention of selling or exchanging for stablecoins . Coin Metrics highlights that the Binance platform was the one that benefited the most from the inflow of BTC , while the Huobi exchange experienced the highest number of withdrawals.
This fact does not surprise analysts, considering that Binance is the largest exchange in the world, with a large market for bitcoin futures.
However, there are Consider that Binance is not based in mainland China , unlike Huobi. The analysis takes this fact as a sample of the pressures that these platforms would be experiencing in the Asian country, which led investors to move their capital abroad.
The following graph presents BTC flows to exchanges since January 2021. It is observed that the amount of bitcoins that entered Binance began to increase substantially from the middle of May, exceeding 4,000 BTC . The opposite happened in Huobi, where about 2,000 BTC were withdrawn for the same date.
«This offensive against Chinese exchanges and commerce could be one more factor in the change that is on the horizon Bitcoin, if that supply eventually leaves China and reaches other hands, “says Coin Metrics.
They cite the view that many analysts have –and that they share– according to which the restrictive measures applied in China finally will help to further decentralize the platform .
Extreme fear also leads to capitulation
Although the selling pressure that began in China contributed greatly to the price drop of the last week, the sell-off was already underway much earlier.
“It all started after the first Elon Musk announcements,” says Coin Metrics. He adds that, although the owner of Tesla clarified his decision not to accept bitcoin for the sale of vehicles saying that the company had not sold any of its bitcoins, “the massive liquidation had already begun.”
The report relates that after May 12, the number of “revived BTCs” began to grow. They refer by this term to the bitcoins that had been held on the network for a period of 90 to 180 days. The offer of these BTC was reactivated from that date. Consequently, “much of the supply that flowed to exchanges was probably bought between December 2020 and May 2021. A large part of them was acquired after February.”
Many sold at a loss , taking into account that the indicators indicate that the majority of bitcoiners had bought when the price of bitcoin was at its all-time highs (from USD 50,000 to USD 64,000).
Possibly fear was what led the holders of these cryptocurrencies to capitulate . On this, CriptoNoticias reported that, according to the Fear and Greed index (fear and greed), the position of investors regarding the cryptocurrency reached a point of “extreme fear” after Musk’s tweets.
