The top cryptocurrency slipped from nearly $49,000 to $45,926 during the early Asian hours and was last seen changing hands near $47,790 – down 1.8% on the day, according to CoinDesk 20 data. 

The decline surprised many investors, as a notable all-time high milestone had looked on the cards amid optimism generated by the recent wave of institutional adoption. 

So what happened? Here are three reasons that may explain the sudden price pullback.

“Bitcoin and other cryptocurrencies, in general, looked overheated, and the Asian session drop was likely a ‘funding reset’ needed for a sustained move above $50,000,” Matthew Dibb, COO and co-founder of Stack Funds, told CoinDesk 

Indeed, the cost of holding long positions in bitcoin (BTC, +2.26%)‘s perpetual futures market, also known as the funding rate, rose to a 12-month high of 0.109% on Sunday, indicating excess bullish leverage, or overheating, in the market. 

The average funding rate began climbing at the end of January and surged to multi-month highs in the wake of Tesla’s disclosure of bitcoin investments last Monday. This suggests that the recent rally from below $40,000 was primarily driven by leverage on derivatives. As such, there was always the risk of funding reset.

The price drop has liquidated over $300 million-worth of bitcoin long positions so far today, according to data source Coinalyze – that’s roughly 30% of the total long liquidations of $1.33 billion observed in the crypto market. 

Many alternative cryptocurrencies such as XRP (-5.43%), XLM (-2.1%), LINK (-2.03%), ADA (+4.95%) and some decentralized finance-linked tokens suffered double-digit price drops in the Asian session, overshadowing bitcoin’s 6% decline. According to Dibb, the wider sell-off added to bearish pressures around bitcoin. 

According to a tweet from market analyst Josh Rager, the altcoin rally had turned “euphoric” last week, meaning a price drop was overdue. 

The Coinbase premium indicator from analytics firm CryptoQuant turned negative on Sunday in a sign of weak demand from large investors. 

The indicator measures the spread between Coinbase Pro’s BTC/USD pair and Binance’s BTC/USDT pair, which includes the USD-linked stablecoin tether. The indicator is widely followed by traders, as Coinbase Pro is considered synonymous with high net-worth individuals and institutional investors. A positive spread implies strong institutional inflows and vice versa. 

“The premium fell nearly to -$80 during Sunday’s early European hours and remained largely neutral when the price was ranging between $48,000 to $49,000,” CryptoQuant CEO Ki-Young Ju told CoinDesk. “Weak spot inflows signaled scope for correction.”

Bitcoin’s rally from early October lows near $10,000 has been largely fueled by increased demand from high-net-worth individuals and institutions. The cryptocurrency consistently traded at a Coinbase premium of around $100 throughout the four-month bull market, with the few instances of negative premiums paving the way for price pullbacks. 

Market analyst Joseph Young cited negative a Coinbase premium and stagnant Grayscale inflows as price-bearish developments on Sunday while pointing to $48,000 as the level to beat for the bulls. 

The seven-day average of Grayscale inflows peaked in mid-January and has been trending south ever since (barring a rise Friday), according to data source Glassnode. While retail investors trade in the spot market, many institutional investors gain exposure to bitcoin through the regulated Grayscale Bitcoin Trust (GBTC).

New York-based Grayscale is owned by Digital Currency Group, the parent company of CoinDesk.

The recent rise from $30,000 to $49,000 lacked volume support on prominent exchanges such as Coinbase. 

The 10-day moving average of daily volume has been declining since early February. A low-volume price rise is often short-lived and prone to sudden pullbacks, similar to the one seen early today.

Bitcoin’s latest price slide is typical of pullbacks observed during the previous bull markets, and the path of least resistance remains to the higher side. 

“We’re probably entering (I think) a brief and minor correction now, but we’re still in the midst of a violent bull run that will soon be more violent,” Ari Paul, CIO of BlockTower Capital, tweeted. 

According to analysts, more institutions may soon emulate Tesla’s move to diversify cash holdings into bitcoin, leading to a convincing move above $50,000. 

At press time, the perpetual funding rate has normalized to 0.05% and the Coinbase premium has recovered to $50. Bitcoin has regained some poise in the past few hours to trade well above $47,000.

Also read: Bitcoin Sets New All-Time High of $49.7K, Putting $50K Within Striking Distance