The price of Bitcoin (BTC) and Ethereum Ethereum (ETH) plunged 13% and 21%, respectively, within minutes on August 2. The move liquidated more than $ 1 billion in futures as BTC / USD fell from around $ 12,000 to as low as $ 10,550.
BTC / USD 1 hour chart. Source: Tradingview
There appear to be two main reasons behind the sudden cascade of liquidations. Firstly, the volume in the cryptocurrency market tends to drop during the weekends. Second, the market was heavily influenced by buyers or buyers.
Snapshot of the cryptocurrency market, August 2. Source: Coin360
Surprise weekend move hits the crypto market again
The cryptocurrency market tends to see big sellouts over the weekend. Liquidity often decreases because there are fewer active traders in the market. Lower volume leads to massive price movements as cryptocurrencies become more vulnerable.
Mass liquidations become more likely over the weekend as a large liquidation could trigger a cascade of liquidations. When a long contract is liquidated, for example, it forces the buyer to sell in the market, causing pressure to sell.
As hundreds of millions of dollars in long contracts began to sell off, Bitcoin and Ether fell rapidly. Bitcoin went from $ 12,000 to $ 10,600 in 15 minutes, while Ether went from $ 417 to $ 300.
But massive liquidations have taken place several times over the past five months. Most notably, on the so-called “Black Thursday” of March 13, liquidations worth $ 1 billion took place. Likewise, just before the halving on May 11, the price of Bitcoin dropped to $ 8,100, leading to massive sell-offs.
Bitcoin and Ethereum have been heavily influenced by buyers
Over the past few days, especially after Bitcoin surged above $ 11,000, the cryptocurrency market has been heavily influenced on the buyer’s side. Bitcoin and Ether funding rates were approaching levels that are unsustainable over an extended period.
Futures exchanges, like BitMEX and Binance Futures, use a mechanism called “funding” to implement market equilibrium. When the overwhelming majority of market participants hold long contracts, short holders are incentivized to pay fees and vice versa.
Prior to the decline, Bitcoin’s funding rate hovered around 0.0721%. With BTC’s average finance rate being around 0.01%, the market was dominated by long contracts.
The market imbalance was even worse for Ether. The ETH funding rate was 0.21%, indicating a significant upward bias. But after the liquidations, ETH’s expected funding rate is 0.19%. This suggests that long ETH has not been flushed out, whereas Bitcoin has.
Ether funding rate on major futures exchanges. Source: Skew
Michael van de Poppe, a trader on the Amsterdam Stock Exchange, previously predicted Ether to drop to $ 300 as a result. He said:
“Let’s see $ ETH at $ 300-320. “
For now, some traders are forecasting sideways action for the days ahead, with Bitcoin having rebounded to a key support level at $ 11,300 and a spread on CME futures will likely emerge on Monday given Friday’s closing price. of $ 11,630.
“The bullish scenario depends on the crucial threshold of 11,300 to 11,400 dollars as the pivot to retain for the price of Bitcoin,” Van de Popped explained in his latest BTC technical analysis.
In the medium term, meanwhile, there is growing optimism about the price trend of Bitcoin. When asked if BTC would hit a new all-time high, Kelvin Koh of Spartan Black said:
” Without a doubt. BTC has hit a new ATH in each of the last 3 cycles and this one will be no exception. The scarcity effect, halving and more capital entering the crypto will ensure this.
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