Five factors likely caused the price of Bitcoin and Ether to steeply drop in a single day, including mass liquidation, an overheated futures market, the decline of Kimchi premium, whales selling and concerns over United States President Joe Biden’s tax plans.
Overcrowded futures market sees $4 billion worth of liquidations
On April 23, in a 24-hour span, the cryptocurrency market saw over $4 billion worth of positions liquidated.
According to Bybt a data analytics platform, the Bitcoin market is currently majority short, with short positions accounting for around 54%.
Binance BTC futures open interest. Source: Bybt
This suggests that in the past day, billions worth of long position were liquidated, leaving a lot of short positions open.
Data also shows that the open interest of the Ether futures market reached an all-time high on CME, indicating that the ETH futures market was also getting overcrowded. The open interest of Bitcoin futures similarly spiked before the price of BTC dropped.
Now, both ETH and BTC are in a better position to recover because their open interests have collectively dropped.
Bitcoin, in particular, saw its futures open interest on Binance, which consistently records the highest derivatives trading volume for BTC, drop to levels unseen since March 8.
Kimchi premium hits 0%
As the price of Bitcoin and Ether plummeted, the Kimchi premium in South Korea fell back down to 0%.
South Korea premium index. Source: CryptoQuant
The premium is now over 4%, but the South Korean cryptocurrency exchange market saw a steep sell-off following a negative statement from the nation’s financial watchdogs.
On April 22, Eun Sung-soo, financial commissioner of South Korea, said that the government is taxing cryptocurrencies but that are not financial assets and the government would not protect them.
The unexpected statement from South Korea’s financial watchdog likely led to a major sell-off in the South Korean cryptocurrency exchange market, causing the Kimchi premium to collapse.
Small- to medium-sized whales are selling
On April 20, the Material Indicators team, which tracks the trade flow of Bitcoin on major exchanges, said that small- to medium-sized whales were selling.
The analysts said:
“While $1M+ people keep buying dips no matter what, $100k – $1M guys have set lower highs and lower lows on their orderflow.”
Whales selling their funds. Source: Material Indicators
This trend was particularly significant because large whales were accumulating Bitcoin in the same period.
The selling pressure put on by small- to medium-sized whales, who were selling between $100,000 and $1 million worth of Bitcoin on major exchanges, intensified the short-term downturn of Bitcoin.
Biden tax concerns
The timing of the Bitcoin price plunge also coincided with the release of U.S. President Biden’s plans to raise taxes on wealthy individuals.
The U.S. stock market dropped, with the Dow Jones Industrial Average declining by more than 1% in a single trading session on April 22.
Holger Zschaepitz, a market analyst at Welt, said at the time:
“OUCH! Dow plunges 400 points on fears of higher capital gains taxes. BBG reports that Biden is planning a capital gains tax hike to as high as 43.4% for wealthy Americans. Proposal would hike capital gains rate to 39.6% for those earning >$1mln, up from 20% currently.”