Reason for Bitcoin's July Drop: A Closer Look
Bitcoin Crashes in Late July Due to Liquidity Inventory Collapse
In a surprising turn of events, Bitcoin experienced a significant price plunge in late July, shedding almost $9,000 from its all-time high of $123,091[1]. According to an analysis by CryptoQuant, this crash was primarily caused by a collapse in liquidity inventory due to a mismatch between low supply and weak demand.
The amount of Bitcoin available for sale dropped to an all-time low, but demand did not increase sufficiently to absorb this scarcity. This was particularly evident as major buyers like exchange-traded funds (ETFs) and large investors pulled back, and no alternative buyers stepped in to compensate. This unusual combination triggered market instability, causing the price of Bitcoin to fall.
The liquidity inventory ratio, which typically rises during periods of low supply to boost prices, collapsed instead, leading to the sharp price decline. The intermittent and unstable ETF inflows failed to compensate for the fund withdrawals, leaving demand insufficient. Large investors and ETFs also reduced their buying activity, contributing to the price pressure.
Despite the bearish short-term pressure and liquidations triggered by breaking support levels, long-term Bitcoin holders have been accumulating significant amounts, signaling strong conviction underlying the broader bullish trend[2][3].
As of press time, Bitcoin trading volume is up by 13.63% to $55.96 billion, indicating a renewed interest in the market. However, the absence of support from institutional buyers has contributed to the sharp decline in price.
In conclusion, the crash was more a result of an imbalance between supply and demand dynamics and reduced liquidity rather than fundamental negative news or broad market sell-offs alone[1].
[1] CryptoQuant, Bitcoin Crashes: Liquidity Inventory Collapse Caused by Mismatch between Low Supply and Weak Demand, [link to article], accessed on [date]. [2] Cointelegraph, Bitcoin Long-term Holders Accumulate Significant Amounts Despite Price Drop, [link to article], accessed on [date]. [3] Decrypt, Bitcoin Price Drops Below $110,000: What's Behind the Selloff?, [link to article], accessed on [date].
- The sharp decline in the price of Bitcoin in late July was primarily due to a collapse in liquidity inventory, caused by a mismatch between low supply and weak demand, as revealed by an analysis by CryptoQuant.
- The amount of Bitcoin available for sale dropped to an all-time low, but demand did not increase sufficiently to absorb the scarcity, leading to a unusual combination that triggered market instability and caused the price of Bitcoin to fall.
- In contrast to the short-term bearish pressure and liquidations, long-term Bitcoin holders have been accumulating significant amounts, signaling strong conviction underlying the broader bullish trend.
