An unverified tweet sent Bitcoin plunging to $51,000, amid Bitcoin’s mining hash rate drop — leading to $10 billion in liquidations.
Although the recent Bitcoin price crash could not be attributed to direct causations, a few factors could have influenced the market plunge. Let’s take a look.
What happened to Bitcoin over the weekend
Sunday’s Bitcoin flash crash liquidated $10 billion in positions, with the largest single position on a BTC trade was $68.73 million. Binance was the top exchange with the most liquidations, accounting for over 49% of losing positions, amounting to $4.94 billion. Huobi came second with 17% of the positions, with over $1.7 billion in liquidations.
Bitcoin price plunged almost $10,000, hitting lows of $50,900 on Binance, reaching lows last seen in early March this year. Bitcoin did manage to recover, however, trading at levels between $55,000 to $58,000 following the crash.
Why caused the Bitcoin price crash?
While Bitcoin’s price action cannot be reasoned by one or more reasons directly, a few major factors could have caused the plunge.
Prominent analyst Willy Woo suggested that the drop in mining hash rate caused the dip; however, this assessment was refuted by other analysts in the crypto industry. Several analysts suggested that it would be possible that the price crashed in tandem with the mining operations halt in China, as confidence in the Bitcoin network’s security fell due to a lower hash rate, and lower mining difficulty.
On April 18, a rumor went around about the US treasury bringing charges against several financial institutions, causing a lot of panic in the crypto markets. However, there has not been any substantial evidence supporting this claim so far.
The market was in euphoria-like sentiment last week when speculators hyped the Coinbase direct listing debut on the Nasdaq. The listing was a “watershed moment” for cryptocurrencies, as it enters the mainstream market through its direct listing. Many believe that this could be the start of the massive adoption of the new asset class.
In any market, as well as the cryptocurrency market, corrections are bound to happen, especially when Bitcoin has hit a new all-time high at over $64,000. Prior to reaching its new record high, Bitcoin has been surging since March and added around $15,000 to its value since then. Corrections are healthy, which could enable Bitcoin to continue to climbing higher as it gains further adoption.
Lesson learned: How to protect your capital during a massive crypto crash
Although consolidations that happen after significant bull runs don’t necessarily mean that it is game-over for the asset, sometimes cryptocurrencies must retest support levels for the market to lock in profits.
Bitcoin suddenly dropping to $51,000 only further indicates that the new asset class as still has more room to mature, before its volatility declines. The recent price crash has led to billions of dollars in losses. However, this could be a lesson learned for many traders, to look at different ways of creating a better risk management system.
On crypto exchanges like Binance, you can manage your risks by setting stop-losses, but this does not always ensure that the stop loss trade is executed. This is due to the fact that Binance only allows Stop-limit trades, which only guarantee a price limit, but does not guarantee that the trade is executed. This could be one of the greatest pitfalls in crypto trading — when the market moves fast, the limit order may not get filled before the market price blasts through the limit price.
While a stop-loss order may be a useful tool at times, investors may not always be able to use it effectively. In that case, how do you effectively manage your risks?
That’s where the stop-market order comes in.
Stop-limit vs. Stop-market orders
With a limit order as its underlying order type, stop-limit orders utilize two prices — the stop price and the limit price. The limit order then becomes after when it reaches the stop price. Limit orders are filled at the order price, or at a better price, therefore the limit price may not always be filled when the market moves in the opposite direction. The stop-limit order could remain unfilled if the market moves quickly, leaving the trader vulnerable to further losses.
A stop-market order uses the market order as an underlying order type, which could further protect a trader from losses when the market moves unfavorably. The trigger price is then the market price, of which the order will execute at that one designated price. The stop-market order will always get traders out of a losing trade, because they will always be filled if the price hits the specified level.
Even if slippage occurs, the stop-market order will still get you out of a losing position, which further protects you from larger losses.
How can you us a stop-market order on a crypto exchange like Binance?
In order to use the stop-market order type, you would need to use an all-in-one crypto trading platform like CoinPanel, which gives you more options than an exchange would.
On CoinPanel’s trading platform, you can choose between a stop-limit stop loss order or a stop-market order, allowing you to have a better risk management system, to prevent massive losses in such a volatile market.
Further, CoinPanel offers a Full Trade feature that allows you to set your entry, and stop-losses ahead of time, to ensure that your strategy prevents you from losing large amounts of money even before you enter a trade.
Check out CoinPanel’s platform, and trade like the winning 1%.