Why Bitcoin Fell: How Gold and Bond Speculators Drained Crypto Liquidity

Classic market theory says that any sustained trend is backed by strong trading volume. But the second wave of Bitcoin's rise from the bottom, which started on December 20th, was marked by low volume. Trading turnover during the first growth wave from November through mid-December was twice as high.

On the other hand, exchanges saw a sharp spike in Open Interest. Starting in December, speculators opened long futures positions equivalent to 10,000 BTC just on Binance—and that number has to be multiplied by their leverage.

The bears exploited this divergence between the spot and futures markets, easily pushing the Bitcoin price down due to low liquidity. This triggered a long squeeze, setting off the bulls' stop-losses on BTC futures and amplifying the cryptocurrency's fall.

The lack of liquidity is linked to gold, whose rally is pulling investment away from the crypto market. Furthermore, there's a global rise in bond yields from developed countries. In the US and Japan, 10-year bond yields have climbed above 4%. This factor also puts a brake on investment into risk assets, which includes Bitcoin.