The price of Bitcoin lost 4.2% over the weekend and fell back to $28,000. The broader crypto market is also consistently in the red. The second largest cryptocurrency by market capitalization, Ethereum, is down 6% since Friday.
Why Are Bitcoin And Crypto Down Today?
As always, Bitcoin’s recent price movement should be viewed from multiple angles as there is usually not just one reason. However, one factor stands out right now: the congestion of the Bitcoin network and the extremely high fees for a BTC transaction.
The reasons for the congestion are the Bitcoin Ordinals and the new BRC-20 token standard. With its establishment in early March, people can now create fungible tokens in addition to Bitcoin. Embraced by the meme coin community, this new token standard has seen a rapid increase in daily transactions and a market cap of over $160 million this week.
Binance, the largest cryptocurrency exchange by trading volume, first announced on Sunday that it had halted Bitcoin (BTC) withdrawals. According to a statement on Twitter, the exchange has halted Bitcoin (BTC) withdrawals due to congestion on the Bitcoin network.
A few hours ago, Binance halted Bitcoin withdrawals again, citing a large backlog of pending withdrawals. Binance tweeted on May 8 that it had “temporarily” halted BTC withdrawals due to “a high volume of pending trades.”
We are temporarily closed #BTC withdrawals due to the large number of pending transactions.
Our team is currently working on a fix and will reopen $BTC recordings as soon as possible.
Rest assured, funds are SAFU.
— Binance (@binance) May 8, 2023
After two hours of Binance wrote that BTC withdrawals were available again, but at a higher cost. “To avoid a similar recurrence in the future, our fees have been adjusted,” the exchange explains, adding, “We will continue to monitor on-chain activity and adjust as necessary. Our team has also been working to enabling BTC Lightning Network withdrawals which will help in such situations.
The congestion of the Bitcoin network and the withdrawal pause at Binance may have upset the market and caused the price drop. Remarkably, it’s not just Binance. At the time of writing, there were 429,000 transactions pending in the meme pool be included in a block.
On the other hand, it should be noted that the Bitcoin price has been in a consolidation phase for several weeks after the furious rally at the beginning of the year. With the recent price drop, BTC is stuck in its trading range, but the overall bullish picture for BTC remains unchanged.
Last but not least, the Bitcoin and crypto market is currently struggling with historically low liquidity due to Operation Choke Point 2.0, as Bitcoinist reported. Because of this, volatility is expected to be higher as even a few large buy and sell orders can move the market more.
Delta-based trader @Skew52 explained that during the price drop, it was noticeable that Coinbase was leading the market with spot sales down. While BTC stabilized at $28,200 at the time of writing, the trader wrote:
$BTC Binance spot. Update: Spot buyers around $28K and likely to sell around $28.5K – $28.7K. Still a decent bidding depth here.
Featured image from iStock, chart from TradingView.com
