- Bitcoin’s sudden drop Tuesday triggered a cascade of long liquidations, pushing its price down to $59,000.
- The fall happened just hours after Bitcoin reached a new all-time high of $69,000.
- Despite the turmoil, the washout in over-leveraged derivatives positions is seen as positive, by analysts.
Bitcoin briefly touched record highs on Tuesday before it plunged as much as 12% to flutter around $60,000.
The rapid rise and fall kicked off a cascade of liquidations across the market, marking the second worst day for traders since the collapse of FTX.
Liquidations totalled more than $1 billion in the past 24 hours, according to CoinGlass data as of noon London time on Wednesday.
Traders with long positions on Bitcoin and Ethereum lost nearly $340 million.
Clear out
Tuesday’s “leverage washout,” in Bitcoin and Ethereum long positions, was the second-highest daily loss since November 2022, when the FTX crypto exchange crashed, according to David Lawant, head of research at crypto trading platform FalconX.
It comes on the back of US spot Bitcoin exchange-traded funds having stolen the limelight since their approval in January.
“The market became myopically focused on the Bitcoin ETF narrative, ignoring the excessive leverage and positioning in the derivatives market,” Jamie Coutts, chief crypto analyst at research firm Real Vision, said on X following Bitcoin’s drop.
Bitcoin derivatives markets had shown signs of overheating leading up to the collapse, with Coutts and other analysts warning of a potential spike in volatility on Monday.
The leading cryptocurrency by market capitalisation was trading above $66,000 again on Wednesday, but prices could fall again, analysts warn.
“When positioning was as extreme as it was leading into the selloff, there is likely to be a bit more downside before that leverage is flushed out,” Coutts told DL News.
“The last pullback in January took over a month before it broke above new all-time highs. I expect in the next one to two months, Bitcoin will be at new highs,” he said.
Bitcoin is expected to climb to $150,000 to $200,000 over the next year, depending on who you ask.
Of the more than $1 billion in liquidations in the past day, over $810 million came from long positions being wiped out, CoinGlass data showed.
Bitcoin accounted for around $218 million of long liquidations.
Crypto liquidations occur when an exchange automatically closes a trader’s position when there isn’t enough money to cover the losses, or what is known as margin.
Open interest on Bitcoin futures contracts on Binance fell dramatically following the crash.
Binance’s most popular Bitcoin market, BTC/USD, saw open interest, or the number of outstanding futures contracts, fall by 8.5% to $5 billion, in the past 24 hours, according to CoinGlass data.
Crypto market movers
- Bitcoin is down 0.8% since Tuesday as it trades around $66,000.
- Ethereum gained 3% to reach $3,800.
What we’re reading
- BlackRock’s Bitcoin ETF sets record with $3.7bn in volume in single day — DL News
- Bitcoin layer 2s bootstrap $2.7bn in DeFi deposits with points offerings — DL News
- Cryptoqueen’s Brother Freed After Serving 34 Months In $4 Billion OneCoin Fraud — Milk Road
- Binance.US Suffered Massive Layoffs And Revenue Loss Following SEC Lawsuit — Milk Road
Adam Morgan McCarthy and Sebastian Sinclair are markets correspondents for DL News. Have a tip? Contact Adam or Seb at adam@dlnews.com or sebastian@dlnews.com.