Bitcoin is going to be okay: Take a look at the data

The key takeaways

• The Friday Bitcoin crash is a sign that volatility continues in the spot BTC era. Leverage and liquidity pressures are also causing losses to increase.

• As portfolio margin systems broke down, the liquidations reached $5 billion. This highlights risks associated with illiquid assets.

• Bitcoin derivatives show that traders are still cautious due to the low liquidity and insolvency speculations, as well as Monday’s US National Holiday, which led to partial market closing.

BitcoinBTCThe price of Bitcoin (BTC) dropped by 16,700 dollars on Friday. That’s a 13,7% drop in just eight hours. This sharp decline to $105,000 has wiped out 13 percent of the total open interest for futures in BTC. These numbers aren’t unusual, even with the massive losses and liquidations.

It is not possible to exclude the “COVID crash” — an impressive 41.1% intraday plunge on March 12, 2020 — which may have been amplified after the leading Bitcoin derivatives exchange at the time, BitMEX, faced liquidation issues Bitcoin has experienced 48 more days of even greater corrections than the 15-minute interruption.

The most recent instance occurred in 2022 on November 9, when Bitcoin fell 16.1% within a single day, to $15 590. This episode occurred at the same time as FTX collapse, which accelerated after a reported revealed that close to 40% of Alameda Research’s assets was tied to FTX’s native token FTT. Sam Bankman Fried’s conglomerate stopped withdrawals shortly after, and ultimately filed for bankruptcy.

The volatility of Bitcoin remains high, despite the ETF market maturation

Some might argue that the number of intraday crashes exceeding 10% has decreased since the introduction of spot Bitcoin exchange-traded fund The ETF will be launched in the United States on January 20, 2024. Still, considering Bitcoin’s historical four-year cycleIt may be premature for us to declare that volatility has really eased. The structure of the markets has changed, as well.

After the ETF launch in January 2024 there were a series of events that followed, including a 15% intraday drop on August 5, 2024; a correction of 13.3% on March 5, and a 10% fall just two days later. The $5 billion of Bitcoin futures sales on Friday suggests that the market could be months, or years away from stabilizing.

Hyperliquid, a perpetual decentralized exchangeReports indicate that positions in the bullish market worth $2.6billion were closed by force. Traders on Binance and other platforms have reported problems with the calculation of portfolio margins. DEX users have also been complaining about the auto-deleveraging that occurs when counterparties don’t meet their margin requirements.

Even traders who were sitting on substantial gains had some of their positions terminated unilaterally, causing major issues for those who use portfolio margin instead of isolated risk management. It is important to note that this isn’t necessarily the fault or malpractice of any exchanges. This is simply a result of traders using leverage on relatively unliquid markets. Altcoins that plunged by 40% or even more triggered a crash in the traders’ deposits.

Bitcoin/USDT perpetual futures Trading was about 5% lower than BTC/USD Spot Prices during the Crash and has not yet recovered to levels before. Market makers would normally be attracted to such differences, which could present an opportunity for them to make money. But something seems to prevent a return to the normal situation.

Related: Crypto.com CEO calls for probe into exchanges after $20B liquidations

Although Friday’s crash was clearly a disturbance, this could have been attributed to the lack of liquidity on Saturday and Sunday, as well as Monday being a US national holiday. Another factor could be rumors about insolvency. This may have led market makers not to take on any additional risk.

It may take a few days before the Bitcoin derivatives market can fully assess the damages and traders are able to decide whether $105,000 will be a support level or if there is upcoming correction.

The article does not provide legal advice or investment recommendations and it is intended for informational purposes only. These are solely the opinions, views and thoughts of the author and may not reflect the opinions and views of Cointelegraph.