The price of Bitcoin, the flagship cryptocurrency, experienced a sharp decrease, falling below the $26,000 mark late on Thursday. This decline represents the first time since June that Bitcoin price would fall below the $26,000 mark.
Although data from Coinmarketcap on Friday morning says it has slightly recovered to sit a little above $26,000, the sell-offs have led to a wide panic in the crypto industry.
Data says crypto traders suffered $1 billion of losses in liquidations over the past 24 hours. Liquidations happen when an exchange closes a leveraged trading position due to a partial or total loss of the trader’s initial money. Usually, when digital assets like bitcoin dip in price, it can kickstart a cascade of liquidations and exacerbating losses
CoinGlass metrics say some $821 million of long positions (traders who bet on prices to rise) were wiped out during the rush to the exits. Specifically, Bitcoin traders took the brunt of the losses, enduring $472 million of long liquidations, followed by ether with $302 million.
Additionally, Coinalyze data says that was the largest level of market liquidations for a single day since June 2022, around the time when the leading crypto’s price plummeted to $17,000.
Despite the dip, bitcoin is still up 60% since it entered 2023 at about $16,550. Its price seems to have been buoyed by news that the SEC may look to approve an Ethereum Futures ETF product as soon as October.
What was the cause of the Bitcoin crash?
While there appears to be no consensus as to why the markets suddenly dropped, several crypto market analysts have shared theories.
Predominantly, Elon Musk’s SpaceX reportedly selling its Bitcoin holdings, the bankruptcy of a Chinese property giant, and fears of interest rate hikes have been among the theories raised.
A Wall Street Journal report on Thursday says SpaceX may have offloaded some or all of its $373 million in Bitcoin holdings which led to anxiety in the crypto space. It is important to note that whenever there is a big name in the industry selling Bitcoin, especially someone as influential as Elon Musk, it will put the price under pressure.
The market price crash occurred less than 3 hours after the WSJ report was published.
Also, China’s second-largest property developer, Evergrande, filed for Chapter 15 bankruptcy in New York on Wednesday, in a move aimed to protect its assets within the United States from creditors
There were fears over the potential consequences for the Tether stablecoin, with nearly half (50%) of its assets relying on commercial paper and certificates of deposits for backing.
However, Tether has stated that it held no exposure to Evergrande:
“Tether does not hold any commercial paper or other debt or securities issued by Evergrande and has never done so. As we have indicated in our published statements and our most recent assurance attestation with a reporting date of June 30, 2021, the vast majority of the commercial paper held by Tether is in A-2 and above rated issuers.”
Where to go from here
Some technical metrics have said the volatility being experienced in the crypto space might not be over yet. A CryptoQuant post says some metrics are forming a pattern that can lead to more volatility in the cryptocurrency’s price.
These indicators are the open interest and the estimated leverage ratio. The “open interest” refers to the total amount of Bitcoin futures contracts that are open on all derivative exchanges.
An increase in this metric suggests that the investors are opening more positions on the futures market right now, while a decrease implies some of them are closing their positions, or are getting liquidated.
This may suggest that a liquidation event involving the shorts is more likely to happen next.
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