Market Wrap: Bitcoin Plummets as El Salvador Buys the Dip

Bitcoin was sharply lower on Tuesday, at one point declining nearly 19% from the $52,000 resistance level. The drop occurred after El Salvador bought 200 BTC on Monday ahead of the Central American nation’s Bitcoin Law going into effect. Under the law, bitcoin is now accepted as legal tender.

The sharp BTC decline triggered about $3 billion of trading position liquidations, with about $1 billion of selling around 10 a.m. ET. Bitcoin was trading around $47,000 at press time and is down 10% over the past 24 hours.

“It’s this volatility that has made many in El Salvador less than optimistic about the currency’s (BTC) adoption,” British financial services company Hargreaves Lansdown wrote in an email to CoinDesk. “Making transactions in the currency when the future price is so uncertain is risky,” the firm wrote.

Latest prices

• BTC$110,087.41: $46,896, -9.7%
• Ether ETH$3,958.93: $3,432, -13.1%
• S&P 500: -0.3%
• Gold: $1,818, -0.6%
• 10-year Treasury yield closed at 1.371%

El Salvador President Nayib Bukele tweeted on Tuesday that “150 new coins added,” and “buying the dip.”

Crypto proponents were reportedly buying $30 worth of bitcoin each to commemorate El Salvador’s move, known colloquially as “Bitcoin Day.” But it appeared that much of the good news had been priced in over the past month.

“The market’s been overextended for the last six weeks without any significant pullback,” Kevin Kang, founding principal of crypto hedge fund BKCoin Capital, wrote in a Telegram message to CoinDesk.

When alternative cryptocurrencies rally, it is typically a sign of frothiness in the market, according to Kang. Bitcoin cash, litecoin, and EOS “typically make their move towards the end of the cycle,” he wrote.

Liquidations and broker glitches

At 16:55 UTC (12:55 p.m. ET), Coinbase noted that it was investigating a “partial outage where some orders are failing due to high volume” and resolved the issue by 17:46 UTC. Earlier on Tuesday, Kraken experienced delays in funding because of issues it was having with ACH online banking purchases, which was later fixed, reported CoinDesk’s Nate DiCamillo.

Analysts also pointed to signs of exuberance led by retail traders to explain the decline.

“Funding rates are not alarmingly high compared to what we saw throughout most of Q1, although history has shown that optimistic short-term traders often lead to increased volatility as long liquidations ramp up,” Arcane Research wrote in a newsletter on Tuesday.

From a technical perspective, bitcoin briefly dipped below the 200-day moving average and found support just above the $42,000 breakout level. The sell-off occurred after multiple signs of upside exhaustion and slowing momentum ahead of the $52,000-$55,000 resistance zone.

DeFi market value reached a new high before sell-off

The total market value of decentralized finance (DeFi) reached an all-time high near $140 billion shortly before Tuesday’s crypto sell-off. Some analysts pointed to Ethereum’s London network upgrade as a source of the bullish enthusiasm that extended to DeFi tokens over the past two months.

Bitcoin fund flows turned positive

Investors are easing back into digital asset investment products after several weeks of outflows. For the third consecutive week, crypto funds have seen inflows totaling $110 million, according to a report by CoinShares.

Bitcoin in particular saw inflows totaling $59 million, “marking a potential turnaround in sentiment amongst investors,” CoinShares wrote.

Solana-focused funds attracted $13.2 million of inflows last week as the cryptocurrency’s price rose nearly 74%. Ethereum products also saw inflows last week, now commanding a record market share of 28% of all digital asset investment products.

Altcoin roundup

• Bored Ape Yacht Club NFT collection fetches $19 million bid at Sotheby’s: The highest bid for a non-fungible token (NFT) collection of 101 bored-looking apes has fetched $19 million at Sotheby’s, surpassing the auction house’s original estimate of $12 million to $18 million. Individual Bored Apes are currently selling at a “floor price” – the minimum for which one can be had – of 40 WETH, or approximately $140,000 on OpenSea. Next, the BAYC will be featured in the rival auction house Christie’s No Time Like Present online auction running from Sept. 17 to Sept. 28.
• Litecoin Enthusiasts Can Now Create NFTs: Litecoin introduced OmniLite, a second-layer protocol that would enable the creation of stablecoins and smart contracts on the blockchain. The rollout would also enable non-fungible token (NFT) creation. OmniLite is based on the earlier Omni protocol, which acted as a secondary layer on the Bitcoin blockchain, reports CoinDesk’s Christie Harkin. According to the announcement, “The tokens created via OmniLite can be considered to be an extension of Litecoin and, as a result, the transactions from these tokens are recorded on its blockchain.”
• Cardano marks Sunday, Sept. 12 for mainnet smart contract upgrade: IOHK, the developers behind Cardano, officially submitted an update proposal today to the Cardano mainnet to trigger a hard fork combinator event on Sunday, Sept. 12. Once a proposal is submitted, it can be voted on by any ADA token holder. Last week, Cardano rolled out smart-contract functionality in a test-net environment. “Congratulations everyone,” tweeted Cardano founder Charles Hoskinson. “The Alonzo Era is on its way.”

Relevant news

• Bitcoin Now Legal Tender in El Salvador, Marking World First
• NBA Star Steph Curry Joins Tom Brady as FTX Ambassador
• BTC Briefly Dropped Below $40K on Huobi Amid Massive Liquidation
• El Salvador Buys Its First 200 BTC a Day Before Its Bitcoin Law Becomes Effective

Other markets

Most digital assets in the CoinDesk 20 ended the day lower.

Notable losers as of 21:00 UTC (4:00 p.m. ET)

• FIL$1.5809: $81.96, -25.8%
• Stellar (XLM): $0.33, -23.1%
• EOS$0.2964: $4.79, -22.8%