Bitcoin Flash Crash Caused By Drop in Network Velocity
Just as Bitcoin (BTC) trading was becoming ‘boring’, a flash crash has erased as much as $500 in rapid-fire selling. Byte Tree CEO, James Bennet, says that this sudden decline was the result of a significant drop in network velocity.
Loss Deepened Within Minutes
BTC slid from above $8,200 at the start of the day, down to $7,769.90, after hovering above the $8,000 range for a few hours. The Wednesday flash crash has worsened the decline, with BTC price pushing down to $7,540 as of 2:35 GMT.
This extends the loss of BTC to 8.70% on a daily basis, a significant downturn as the leading coin rarely made moves at above 5% per day. For BTC, this is one of the most dramatic price moves since September 23, when the launch of the Bakkt exchange coincided with a crash from the $10,000 tier down to $8,000, where prices stabilized for a while.
The most recent flash crash followed a period of slowing transactions and value transfers. The price loss was a result of lowered network velocity, believes Byte Tree CEO, James Bennet.
Velocity has been slowing significantly over the past weeks as transaction volume moves over to stablecoins such as tether. Ultimately, this depressed demand for the bitcoin network has lead to this recent drop in price
Network velocity is a tracker of how actively each BTC moves through the economy. Historically, a velocity under 600% translates into market trouble.
BTC Activity Slows Down
Currently, USDT activity has increased above that of BTC, meaning the market is pretty much at the mercy of the stablecoin. BTC takes up around 29% of all crypto trading, while USDT often exceeds a share of 35%, shows CoinMarketCap data. The Bitcoin network itself carries a varied value each day, with volumes fluctuating between $300 million and as high as $1 billion per day.
A drop of a few hundred dollars is not unusual for Bitcoin, especially with volatility inching up in October. But the slide to the $7,700 price range also means a new test to establish a bottom. BTC is currently seeking direction, but there are expectations for a prolonged correction.
At the start of the week, whale-watching bots noted a handful of large-scale BTC transactions moving into exchanges, potentially signalling selling pressures. But the actual downward pressure did not materialize until Wednesday.
BTC also had a relief rally just days ago, pushing near the $8,300 tier, making the current loss even more dramatic. The Bitcoin fear and greed index immediately fell toward 33 points, down from a stable 41 points for most of last week.
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