On May 7th, the cryptocurrency market experienced a significant pullback. Bitcoin opened around 82,400, reaching a three-month high of 82,860 during the day, then sharply retreated, falling over 2,000 points within a few hours, ultimately closing at 81,055, down 1.61% over 24 hours. More notably, Bitcoin briefly broke below the $80k psychological level, touching a low of 79,500, with a 24-hour decline of 2.11%. Ethereum performed even weaker, dropping 3.19% to $2,280. According to data, over 130k traders were liquidated within the day, with a total liquidation amount of $510 million.

From a macro perspective, this decline contrasts sharply with the strong performance of global stock markets. On that day, the S&P 500 hit a new all-time high amid optimism that the US and Iran might reach a peace agreement, while Japan’s Nikkei 225 surged 4.2%, setting a record. The crypto market failed to benefit from these macro positive signals and instead weakened, indicating that funds are flowing from digital assets into traditional markets, especially into more attractive tech sectors like AI. FxPro’s chief market analyst pointed out that this is a sign of liquidity drying up, and before new native catalysts emerge in the crypto space, there is a risk of further capital outflows.

Analysis of the core drivers behind the decline

The recent correction is the result of multiple factors resonating:

(1) Signals of institutional reduction of holdings triggered market concerns.

On May 7th, Strategy Inc. (formerly MicroStrategy) Chairman Michael Saylor hinted that the company might sell some Bitcoin holdings to pay dividends to shareholders—this marked a significant shift from his long-standing "never sell" principle. As the world’s largest corporate Bitcoin holder, this signal directly triggered risk-averse sentiment in the market.

(2) Derivatives market short positions are deeply imbalanced, with a tense showdown between bulls and bears.

According to K33 Research, as of May 7th, the 30-day average funding rate for Bitcoin perpetual contracts had been negative for 67 consecutive days, surpassing the record from March to May 2020, making it the longest negative funding period in the past decade. Such prolonged negative funding indicates extremely crowded short positions, yet the spot price temporarily rose above $82,000, creating a "structural divergence" where the price moved upward despite negative funding rates. The tension between accumulated short positions in derivatives and rising spot prices was a key internal reason for the sharp decline after reaching a high on May 7th.

(3) Ethereum leading the weakness, with technical breakdowns first.

Ethereum’s four-hour chart shows a large bearish candle that broke below the key support at $2,350, forming a "death cross," with short-term bearish momentum clearly dominant. As a leading market indicator, Ethereum’s early breakdown exerted downward pressure on the overall market sentiment.

Looking at today’s market, BTC still maintains a strong oscillating structure, with the price near the $80,000 level, and bullish sentiment has noticeably improved. In the short-term four-hour timeframe, BTC continues to form higher lows and higher highs, with the MA30 and MA60 forming a golden cross, and MACD above the zero line, indicating the current trend remains bullish. If it can effectively break through $82,000, the next target could test previous highs around $85,000–$88,000; however, if volume breaks below $78,500, caution is needed as a retest of support at $76,000 is possible. Overall, this is a "high-level consolidation within an uptrend," with main funds still favoring buying on dips.

For Ethereum, the recent trend is slightly weaker than Bitcoin’s, but funds are gradually flowing back. ETH is currently oscillating around $2,300, with the 50-day and 200-day moving averages approaching a golden cross, which could signal a new medium-term rally once confirmed. The RSI is near 50, indicating the market is still choosing a direction, while ETF inflows and whale accumulation provide strong support. Short-term resistance is at $2,420; a volume breakout could push further toward $2,650. Key support remains around $2,200.

Overall, the crypto market sentiment remains relatively warm, but since Bitcoin is approaching a resistance zone, short-term volatility may increase significantly. It’s more suitable to "buy the dip in line with the trend" rather than chasing highs. If BTC can maintain its strong structure, subsequent funds may further flow into ETH and mainstream altcoins, forming a rebound rally.