Why Bitcoin fell 3% today

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What happened

It’s been a turbulent day for most risk assets today, with all three major indices seeing red in today’s early afternoon session. This bearish sentiment has spilled over into the crypto market, with the world’s largest cryptocurrency, Bitcoin (BTC -2.70%), falling 3% in the past 24 hours, as of 12:30 p.m. ET .

The move coincides with strong sell-off data, suggesting that investors who took bullish bets using derivatives and leverage were forced to unwind their positions. About 80% of bitcoin liquidations today have taken place over the long term, with $41.9 million in total liquidations underway today, according to data from Coinglass.

So what

This movement related to Bitcoin’s liquidation underscores the importance of understanding how leverage works, both upside and downside. The digital asset ecosystem is largely driven by large bets, often tied to leverage. So many investors in this space are constantly watching what the so-called whales, or big investors, are doing and how the derivatives markets are performing at any given time.

It’s also worth noting that today’s move in Bitcoin follows another week of inflows into digital asset investment products. Bitcoin alone has seen more than $100 million in capital flow into these products, accounting for around 90% of total inflows into the industry. So, with demand appearing to remain high for Bitcoin, today’s decision appears to be driven more by leverage and profit taking than anything else.

Now what

The $30,000 level appears to be a key psychological level that investors, traders, and speculators are watching closely. For many, this may have been a trigger to force some profit taking, after a rather incredible run this year. Year-to-date, Bitcoin is up around 78%, a very strong move in just a few months. Accordingly, investors should not be lambasted for taking some off the table here.

Now the question is whether Bitcoin can break through the $30,000 level and resume its upward move. Currently trading around $29,500, Bitcoin will remain a must-have crypto for investors interested in this sector.

Chris MacDonald has no position in the stocks mentioned. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

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