Anyone who knows about Bitcoin knows about its volatility. It’s rise and fall is basically its whole existence. Investors look up ’bitcoin falling’ to look up to see what dropped and if it’s short term or long term.
Bitcoin’s price declines for the same reason as any asset: the fundamentals of supply and demand. More sellers than buyers. It might be news, sentiment, or something specific, but Bitcoin is constantly falling.
Note: This is not financial advice. Crypto is extremely volatile and you should only invest what you can afford to lose and consider reaching out to a professional for specific advice to your situation regarding Crypto.
1) To Begin, Bitcoin’s Price Is Falling Due To A Reason Crypto Underlying Cause
It is news or something specific, but the fundamentals remain constant. More sellers than buyers. It is the same as any asset. Bitcoin’s price is falling.
Bitcoin is unique because the speed at which the supply and demand changes is affected by:
- the use of leverage
- seasonal time periods where liquidity is low
- the positive and negative sentiment of the market (also known as the reflexivity sentiment)
- the various risks associated with crypto, like centralized exchanges, stablecoins, and government regulation
- the various risks associated with macros (these are regulation-based risks) like the economy in general, which affect almost all cryptocurrencies.
A global macro shock also has an impact on all cryptocurrencies, including Bitcoin. Each individual cryptocurrency reacts based on its specific unique factors.
Most sell-offs are not caused by a single variable, but rather a stacking of variables.
A negative headline in a cryptocurrency can cause many other factors. For example, it can trigger a wave of selling, which breaks a technical support level, which then causes a technical sell off, which triggers stop-loss sell orders, which triggers an automatic system based sell-off (liquidations) on a centralized exchange, and causes a wave of panic selling.
2) Common Reasons Why Bitcoin Falls
A) Macro factors: inflation, interest rates, and the current market sentiment
Bitcoin is an alternative to traditional finance, and originated with a different approach. However, current conditions cause it to trade like a risk asset, making it difficult to succeed in situations where:
- interest rates are high or expected to stay high
- the yield on bonds increases (which means safer assets are becoming more attractive)
- the U.S. dollar increases in value
- selling off of equities due to fears of a recession and geopolitical tensions (this increases the dollar value and increases equity selling)
Higher rates = more cost to get money, and therefore, people will hold on to their money in a safe asset. (this increases the total money supply in the economy )
Key Topics To Follow
- US Fed monetary policy
- US CPI, inflation rates, jobs data
- US bond yields, namely the 10-year Treasury note
- US equity market volatility through the индекс VIX
B) Domino Effect: Liquidations in the Crypto Market
Heavy leverage in the market can lead to rapid declines in the price of Bitcoin that’s why using leverage in the market can cause the price to go down more rapidly. Margin trading and perpetual futures are favorite trading strategies among Bitcoin traders. When a price hits the level of liquidation, the exchanges close the position automatically, therefore, creating a market sell order, which pushes the price down even more.
The consequences of margin trading can lead to extreme drops in the price of Bitcoin even if the initial cause was a minor price movement.
- Price dips
- Large liquidations of leveraged long positions
- Further price dips due to more liquidations
- Another wave of positions that get liquidated.
Liquidations can even turn minor price movements into a major event.
What to watch:
- open interest (OI) increasing fast can be a sign of leverage building
- funding rates (very positive funding can indicate crowded longs)
- liquidation spikes (spikes tend to happen in fast declines)
C) Support and trader psychology
A lot of technicals and systems drive BTC trading. If BTC breaks a major support level (previous swing low, moving average, or a range ceiling), it can get sell acceleration through:
- stop-loss orders getting hit
- trend-following systems going short
- traders closing positions when thesis is proved wrong
Technical levels influence behavior, but don’t create reality. A lot of market participants tend to cluster around the same zones.
What to watch:
- significant levels from previous cycles
- high-volume nodes
- 50-day and 200-day moving averages
- market structure (higher lows vs. lower lows)
D) Sell the news and profit-taking
Bitcoin often has good news already baked in. It is not that the news is bad once it breaks. Prices decline because of traders buying the rumor and then selling at the event.
Risk-taking in these instances is demonstrated through the “sell the news” phenomenon. This is the act of profiting off news just released surrounding a company’s IPO or a big product launch, as well as the events surrounding Bitcoin halving, offsets in the marketing tide as the event approaches.
When a market turns, big players tend to cash out, leading to a downtick in price levels, and firm resistance to further raises.
What to monitor:
- overly positive news
- a sharp price increase over established moving averages
- price momentum in the opposite direction and lower volume (often referenced as declining volume and RSI divergence tend to move in opposite directions together)
E) Bitcoin ETFs and institutional flows
In the beginning, it is difficult to pinpoint the value of Bitcoin ETFs and institutional flows, but as Bitcoin increasingly intermingles with the rest of the financial ecosystem, flows become relevant. Also, within the framework of large moving pieces:
- inflow events lasting over a massive timeframe→ pushes the price
- outflow events lasting over a massive timeframe→ pushes the price down (directly or indirectly)
While price is determined by flows and a massive quantity of moving pieces, the net short to medium timeframe distribution of the moving pieces will alter value during slower periods.
What to monitor?
- the net value of moving pieces in and out, as documented
- the quantity of the moving pieces to the custodians and balance held by them (documented by custodians, if available)
F) Market changes and uncertainty surrounding the law
Even the mere consideration of regulations can make a market move quickly and the changes are primarily tied to:
- how liquid the market is
- the available stables
- how involved the market is with the institutions
The market is primarily influenced by stables. When it is difficult to contain the uncertainty, a market will not move. When the traders are unable to price in a result, a market will seek exposure.
What to keep an eye on:
- Policy proposals, enforcement actions, lawsuits
- Legal interpretations of the compliance framework
- Stablecoin or banking-rail restrictions
G) Exchange risk, hacks, and stablecoin stress
Crypto remains subject to operational risk, such as
- Exchange outages during periods of extreme volatility
- Hacks or other exploitations
- Rumors around exchange insolvency
- Concerns around the depegging of stablecoins or the liquidity of stablecoins.
Because stablecoins are a primary source of trading liquidity, stress on stablecoins can impact Bitcoin, regardless of whether Bitcoin is impacted at the protocol level.
What to watch:
- The instability of the stablecoin peg, particularly during times of market stress.
- Narratives around exchange proof-of-reserves (to be interpreted with caution).
- During periods of irrational panic, on-chain transfer activity to the exchanges.
H) Whales and market microstructure: big sellers can move price
Although Bitcoin is traded globally, the liquidity is not boundless. Large holders (“whales”) are able to shift the market by
- Selling spot into the order books that are thin and have low liquidity (aka “a thin order book”)
- Hedging via the futures market
- Moving coins into an exchange (which is interpreted by many as a signal to sell).
While moving coins into an exchange may not guarantee a sale, the market will respond to perceived intent.
To look for:
- big inflows to exchanges (needs context)
- depth of the order book and liquidity situation
- weekends/overnights (liquidity is usually thinner)
I) Miners and network economics
Miners have operational costs. When profitability tightens—because of price drops, rising energy expenses, or changes in block rewards—miners may need to sell more BTC to fund their operations. The changes are complex, but miner conduct can help create supply pressure in specific phases of the cycle.
What factors to watch:
- hashrate (be careful, this can lag)
- revenue metrics, profitability, miner metrics
- big miner to exchange flows (context is important again)
3) How To Determine A Bitcoin Pullback vs. A Bear Market
Not all drops are crashes, and not all crashes lead to multi-year bear markets. Bitcoin has dropped in price before, and historically has seen:
- many 10–30% pullbacks and continued dropping for bull markets
- regular 50–80% drawdowns in bear markets
So what separates a normal pullback from a more serious pullback?
Signs it could be a normal correction (but this is not guaranteed)
- price stays above high weekly support zones
- long-term trend indicators are still in place (depends on your time frame)
- selling is driven by leverage flush (liquidations spike then chill)
- panic doesn’t show in long-term holder on-chain activity
Signs the risk is increasing (but this is not guaranteed)
- on the bigger time frames, lower highs remain, and lower lows are repeated
- enduring low liquidity and high selling volume
- a thick risk-off sentiment in the macro regime
- big negative structural events (failing exchanges, regulatory shocks)
Each indicator is not complete. This is how the evidence weighs.
4) What To Watch When The Price Of Bitcoin Starts Going Down
These are tools to assist to be used in conjunction when the price is dropping.
- Is sell volume expanding or fading?
- Are bounces weak (low volume) or strong (high volume)?
- Where are major support zones based on prior trading?
B) Funding rates and open interest (derivatives)
- Very high positive funding can mean crowded longs (vulnerable)
- Falling price + rising OI can signal aggressive shorting
- Rapid OI collapse often happens during liquidation events
C) Exchange inflows/outflows
- Rising exchange inflows can signal intent to sell (but not always)
- Strong outflows can signal accumulation or self-custody moves
Interpret carefully: institutional custody and internal transfers can distort signals.
D) Volatility measures
- Implied volatility can rise sharply during fear
- Large volatility expansions often cluster around macro events or liquidations
E) Market sentiment
- Extreme greed often precedes pullbacks
- Extreme fear sometimes appears near bottoms
Sentiment is most useful as a contrarian input, not a timing tool.
Typical crypto sell offs
There are sell offs that happen with Bitcoin that have happened before. Here are common events that happen:
- Trigger: Macro print, headlines, technical breaks, or whale sells.
- Acceleration: Stops get triggered, and the price drops quickly.
- Liquidation: Leveraged positions close, big red candles appear.
- Capitulation, or stabilization: Selling is exhausting.
- Relief rally: The price bounces, the shorts take their profit and buyers join.
- Decision point: Continuation down, or the trend reverses back up.
A lot of people get confused by these ‘relief rallies’. A price jump does not indicate that the price is not going down. It could just be short covering.
Risk management/reaction to falling Bitcoin prices
Emotionally driven decision making should be avoided, and reducing losses should be the focus.
For long term investors:
- Know your horizons: Are you investing for months, years, or decades?
- Use position sizing: Don’t allocate more than you can tolerate losing.
- Consider a DCA plan: Dollar cost averaging can relieve the stress of the cut off.
- Don’t panic sell: Many investors sell near their lows due to fear and then buy back higher.
If bitcoin drops 30-50% is my mental health/ finances gone? If yes, you have too much money in this investment.
As a short-term trader
- Buckle up for the ride! BTC could go way down for you.
- Before you enter, define stops, and take profit. When to stop
- Kill the account breakers Do not have a lot of leverage when the account is going down.
- Revenge trading is a myth. If you lose, don’t trade more thinking you will win.
If you are any type of trader
- Secure your custody. If you are holding for a long time, learn good practices so you aren’t completely defenceless.
- Avoid shepherding. “This time is different” is predictive and owning.
- Taxes are a thing in the US and selling causes you to have tax events.
7) Common Myths About Bitcoin Falling
Myth 1: “Bitcoin is falling because it’s dead.”
Every time Bitcoin drops people say it is dead. it is not.
Successful = the above is not a guarantee, but it is part of Bitcoin’s historical behavior.
Large drops are part of Bitcoin’s historical behavior across time, and so will large returns (not a guarantee).
Myth 2: “There is always one clear reason.” There are always several at once.
There are often multiple refined reasons – macro + leverage + technicals + sentiment
Myth 3: Quick drops mean quick rebounds.
This is not always the case. While drops caused by liquidation can be followed by rebounds, significant trend reversals can take months to change.
8) When to be especially careful
Some setups may especially expose Bitcoin when
- there is extremely crowded leverage (one-sided positioning)
- liquidity is thin (weekends, holidays, off-hours)
- a significant macro release is about to happen
- there is a lack of clarity regarding a significant piece of crypto infrastructure (something related to an exchange/stablecoin)
During these periods, it is less about predicting to what direction the market will move and more about surviving: default to smaller size, lower leverage, and clearer rules.
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