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What happened

It's been a rocky day for most risk assets today, with all three major indexes seeing red in today's early afternoon session. This bearish sentiment has bled into the crypto market, with the world's largest cryptocurrency, Bitcoin(BTC -2.86%), slumping 3% over the past 24 hours, as of 12:30 p.m. ET.

This move coincides with some strong liquidation data, suggesting investors who have taken bullish bets using derivatives and leverage have been forced to unwind their positions. Approximately 80% of Bitcoin liquidations today took place on the long side, with $41.9 million in total liquidations taking place today, according to data fromCoinglass.

This liquidation-linked move in Bitcoin highlights the importance of understanding how leverage works, to the upside and downside. The digital asset ecosystem is driven in large part by significant large bets, often linked to leverage. Thus, many investors in this space constantly keep a close eye on what so-called whales, or large investors, are doing, and how the derivatives markets look at a given point in time.

It's also worth noting that today's move in Bitcoin follows yet another week of inflows into digital asset investment products. Bitcoin alone saw more than $100 million of capital flow into such products, making up approximately 90% of the total inflows into the sector. Thus, with demand appearing to remain high for Bitcoin, today's move looks to be driven more by leverage and profit-taking than anything else.

The $30,000 level appears to be a key psychological level investors, traders, and speculators are watching closely. For many, this may have been a trigger level to force some profit taking, after a rather incredible run this year. On a year-to-date basis, Bitcoin is up approximately 78%, a very strong move in just a few months' time. Accordingly, investors shouldn't be lambasted for taking some off the table here.

Now, the question is whether Bitcoin can break through the $30,000 level and resume its move higher. Currently trading around $29,500, Bitcoin will remain a must-watch crypto for investors interested in this sector.

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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Why Bitcoin Slumped 3% Today - The Motley Fool