The cost of Bitcoin (BTC) dipped to as low as $53,905 on Binance overnight, recording a sudden 6% drop. Just despite the modest correction, the price of Bitcoin quickly recovered thereafter, reaching a new all-time high above $57,800 on Feb. 21.

BTC/USDT 4-hour toll chart (Binance). Source: TradingView.com

Why did Bitcoin drib and recover so quickly?

Although Bitcoin saw a steep drop within merely hours, analysts pinpointed that it brutal to the exact bottom of a short-term trendline.

John Cho, the Director of Global Expansion at Ground X, noted that the drop was a liquidity fill up at a lower cost.

A liquidity fill simply means when an asset drops afterwards stagnating to fill up buy orders at the bottom of the range

A drop was expected because Bitcoin was consolidating with the futures funding rate at around 0.15%.

Beyond major futures exchanges, the Bitcoin futures funding charge per unit was hovering betwixt 0.1% to 0.ii%, and information technology was particularly high for stablecoin pairs.

Bitcoin futures exchanges use a mechanism chosen funding to incentivize buyers or sellers based on market sentiment.

For example, when there are more than buyers in the marketplace, the funding charge per unit turns positive. When that happens, buyers have to pay sellers a portion of their position every eight hours.

When the funding rate is high but the price of Bitcoin is consolidating, the take a chance of a large short-term drop increases.

This trend is what occurred overnight on Feb. xx, equally Bitcoin declined by more than than 6%. Although the funding charge per unit remains near 0.ane%, information technology has dropped substantially since.

The funding rate for altcoins, including Ether (ETH) and DeFi tokens, reset to effectually 0.05%. Equally such, altcoins saw a stronger bounciness than BTC.

In that location is ane major run a risk in the foreseeable future

In the almost term, Bitcoin faces a major gamble due to the U.Southward. Treasury bend rising. When the Treasury curve rises, historically, risk-on assets like stocks tend to drop.

In the past week, the U.S. stock market has corrected quite steeply, demonstrating a articulate correlation with the Treasury curve.

However, information technology remains uncertain whether Bitcoin would react the same way given that information technology is not only considered a take a chance-on nugget merely also as an inflation hedge, which ways it could counter the risk of the Treasury bend.

What's more, the correlation between Bitcoin and other assets including stocks and aureate has been declining since September 2020.

Bitcoin rolling xc-day correlation vs. S&P500, Gold, VIX, USD

Thus, there is a possibility that the inflation hedge aspect of Bitcoin counters the rise Treasury curve. If so, BTC could remain unfazed, especially given the electric current forcefulness of the bull run.

Misa Christanto, an analyst at Messari, said that in a bear market, everything is correlated. Only Bitcoin, which is also considered a "reflation trade," has been resilient. She wrote:

"Us Treasury curve is steepening. Why should we care? Because in a bear market, everything is correlated. So far the headwinds have been on equity returns, on unprofitable tech names. Reflation trades like $BTC unaffected."