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In the world of cryptocurrency, experiencing the transition between "heaven" and "hell" in one day is commonplace for Bitcoin holders. When you wake up and find that assets have skyrocketed by 20% or plummeted by 15%, this roller coaster like experience is the result of a series of complex factors working together. This article will delve into which forces are driving the short-term price trend of Bitcoin in one or two days.
Unlike traditional stock markets, the Bitcoin market has some inherent characteristics that are prone to violent fluctuations
24/7 uninterrupted trading, the global market never sleeps, and any news at any point in time can instantly ignite the market without any "circuit breaker" or "closing" to buffer it.
Although Bitcoin's market value has reached trillions of dollars, it is still relatively small compared to the global gold or stock markets. This means that it does not require a huge amount of capital to drive prices up or down significantly.
Lack of unified regulation and transparency in market manipulation (such as "whales" smashing or pulling stocks), spread of false information, and other behaviors are more likely to occur and have an impact in an environment lacking effective regulation.
In the above soil, the following factors are the direct sparks that ignite short-term market trends
1. The 'barometer' of macroeconomics
Bitcoin is increasingly being seen as a 'macro asset' that is highly sensitive to the global financial environment.
*US economic data and Federal Reserve policies such as CPI (Consumer Price Index), non farm payroll data, and Federal Reserve decisions and statements on interest rates will strongly influence the market. If the data shows high inflation and strengthens expectations of interest rate hikes, it usually leads to the sale of risky assets (including Bitcoin) and a sharp drop in prices within a few hours.
The strong US dollar index (DXY) and bond yields typically put pressure on Bitcoin as investors withdraw from risky assets and return to safe haven assets such as the US dollar.
2. Sudden industry news and events
This is the most common reason for Bitcoin's "vertical rise" or "cliff like decline".
*Regulatory dynamics: A major country's announcement of a ban on cryptocurrencies or rejection of Bitcoin ETF applications may instantly trigger panic selling in the market. On the contrary, if the US approves Bitcoin spot ETFs like before, it will lead to explosive buying.
*Technical news * *: News about important upgrades and security vulnerabilities in the Bitcoin network (such as large exchanges being hacked) will directly affect market confidence.
*Abnormal activity of "whales": The transfer behavior of addresses holding large amounts of Bitcoin (commonly known as "whales"), especially depositing huge amounts of Bitcoin into exchanges, is often seen as a precursor to selling and can trigger market trends.
3. Market sentiment and leverage effect
*Fear and Greed Index: When the market is extremely greedy, any negative news can become a trigger for profit taking; When the market is extremely fearful, even a little positive news can trigger a "dead cat jumping" rebound.
*The chain reaction of leveraged liquidation: This is an accelerator that amplifies volatility. When prices move rapidly in one direction, it can lead to a large number of highly leveraged contracts (such as 10x, 50x, or even 100x) being forcibly liquidated. These forced liquidation orders will act as counterparties, further driving the price to accelerate and form a stampede situation of "long kill long" or "short kill short", causing fluctuations of more than 10% within a few minutes.
4. Game theory at the technical analysis level
*Key support and resistance levels: Many traders pay attention to the key technical points on the chart. When the price falls below a widely recognized strong support level, it triggers programmed sell and stop loss orders, causing the price to accelerate its decline. On the contrary, breaking through key resistance levels will attract a large amount of technical buying.
** * Trading volume can * *: Price fluctuations without trading volume coordination are usually false. A sharp increase or decrease in volume means that the new trend has been confirmed by market funds, and its credibility is higher.
Case study: How a typical "flash crash" or "burst" occurred
Scenario: A two-day fluctuation triggered by "regulatory rumors"
*On the morning of the first day, the market was calm and Bitcoin was consolidating around $30000.
*On the afternoon of the first day, an influential media outlet released a vague message on social media stating that a major country is considering introducing new encryption regulatory policies. Market sentiment is becoming tense, and some sensitive investors are starting to reduce their positions.
*On the first day, in the evening, the message was reposted and amplified by more media, and the title became more panicked. The price began to slowly decline to $29000.
*On the second day, in the early morning, a large "whale" took the lead and transferred thousands of bitcoins to the exchange, which was interpreted by the market as a selling signal. The price has fallen below the key technical support level of $28500.
*On the second day, in the early morning, falling below the support level triggered a large number of leveraged long stop loss orders and forced liquidation. In just one hour, due to chain clearing, the price plummeted to $26000, a drop of over 13%. The market is plunged into extreme fear.
*On the second day, in the afternoon, the official clarified that the rumors were not true or the details were not as strict as expected by the market. Short positions are beginning to take profits, and investors who dare to "buy the bottom" are entering the market. The price quickly rebounded from the low point to $27500 and entered a new oscillation at this position.
Disclaimer: The above content only represents the author's personal opinion and is intended to assist investors in understanding information related to the capital market. It does not constitute any investment advice and does not represent the position or viewpoint of AiCoin. The market is risky and investments should be made with caution.