The 4% downturn in Bitcoin after the allegations against BitMEX became known is probably not a long-term threat to the price.

Bitcoin ( BTC ) suddenly slipped yesterday evening after it became known that the American Derivatives Trading Authority (CFTC) had brought charges against BitMEX . The crypto exchange is charged with promoting money laundering and illegal derivatives trading.

The gravity of the allegations became all the more apparent when Samuel Reed, one of the co-founders of BitMEX, was arrested

BitMEX was the market-leading trading platform for Bitcoin Trader futures for a long time, before the so-called „Black Thursday“ intervened in March 2020, which resulted in massive sales valued at 1 billion US dollars and lowered the Bitcoin rate to 3,750 US dollars . Because of this, competitors like Binance Futures and ByBit were able to secure large market shares.

Crypto experts had long rumored that sooner or later there would be allegations against BitMEX, but Reed’s arrest comes as a surprise to them too. The shock also made itself felt on the price development of Bitcoin, as it fell by 4.11% after the news became known. As a result, the crypto market leader slipped from $ 10,833 to $ 10,437.

However, there are several factors that suggest that Bitcoin will recover from this horror, at least in the short term. The main reasons are the briefness of the downturn it triggered, Bitcoin’s past behavior in legal disputes and strong support at $ 10,500 that is currently holding.

Is the pain temporary?

The Bitcoin rate crashed more than 4% within two hours. Such a drastic downturn in a very short time is unusual and proof that the BitMEX report can be seen as a trigger.

Usually, when Bitcoin falls with such intensity, it is followed by a kind of domino effect that results in liquidations. Since most traders in the futures market trade with leverage, i.e. a financial leverage effect, this creates a downward spiral that closes more and more long positions and pushes the price further.

At the moment, however, the open interest, a key figure that quantifies the total value of the open positions in the market, is relatively low and the trading volume in the futures market is significantly lower than usual. Accordingly, there are fewer traders who trade with excessive leverage and from hit a downturn dramatically.

Government action is not a long-term threat

In recent years, the crypto industry has repeatedly suffered severe setbacks from decisions by governments, parliaments and authorities, but as crypto market researcher Vijay Boyapati confirms, Bitcoin has repeatedly recovered from this.

The allegations against BitMEX could have negative effects in the short term, but according to Boyapati it is unlikely that an effect will also be noticeable in the long term:

“Bitcoin has always responded negatively to severe government action. Historically, however, this has always been a good buying opportunity. The allegations against BitMEX are no exception. „