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'Classic top setup'? Bitcoin price flash crashes on Kraken after all-time high

A likely "stop-loss run" triggers a one-minute candle to more than $3,000 lower than Bitcoin spot price before a rebound, in extreme volatility.

Bitcoin (BTC) reached a new all-time high on various exchanges on Nov. 30, but one record, in particular, hit the headlines for a different reason.

Data from cryptocurrency exchange Kraken shows BTC/USD hit its highest ever price on its order book — then dove to $16,600 in seconds.

Kraken BTC price dumps $3,000

The reason for the crash, which will have liquidated a large number of positions and caused considerable pain for many a speculator, was likely what is known as a "stop-loss run."

Stop-loss runs involve large-volume traders who intentionally place large sell orders at a specific price point, then target where they think a large number of stop-loss positions reside. In this case, the target was around $16,600, near the location of last week's local bottom.

The result is a cascade of selling pressure that very quickly delivers the result, if successfully estimated, only for the market to subsequently rebound once the process is over.

Kraken XBT/USD 1-minute chart showing crash. Source: TradingView

Liquidity risk is always a given factor in exchange trading, and Kraken's one-minute wick down by $3,000 aptly demonstrates why traders should exercise caution around significant price points.

Another explanation, or possibly one that contributed to the event, was investors choosing to exit at near $20,000 in order to avoid the costs of a sudden reversal at resistance.

Bollinger cautions over "classic top formation"

"OK, time to pay attention, $BTCUSD. That is a classic top setup," John Bollinger, creator of the Bollinger Bands volatility indicator, warned.

"No confirmation yet and the setup could easily be overrun, but wise traders should wash their glasses."

When asked by a Twitter user if this is a local top or whether Bitcoin's price will go down from here, he responded that "For now, a potential local top..."

Beyond Kraken, meanwhile, Bitstamp also reached its own all-time high at $19,869, with BTC/USD then falling toward $19,000, a level that the pair reclaimed just hours ago.

"For those who are feeling bullish about #Bitcoin, today is the day you’ve been waiting for," exchange Binance meanwhile summarized.



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