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.

• Portfolio margins systems failing, liquidations have reached $5 billion. Illiquid collateral assets are a risk.

• Bitcoin derivatives indicate that market makers are cautious due to low liquidity, rumours of insolvency, and the US holiday on Monday, which led to a partial closure.

BitcoinBTC( ) fell by $16,700 Friday. This represents a correction of 13.7% in less than 8 hours. In BTC, the sharp fall to $105,000 erased 13% of all futures interest. Despite steep losses, and the cascading of liquidations these figures are nothing new in Bitcoin history.

Even though excluding “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.

On Nov. 9, 20,22, Bitcoin experienced a 16.1% correction intraday, plummeting to $16,590. The episode was a coincidence with the FTX collapse, after a recent report revealed that FTX’s native token FTT was responsible for nearly 40% of Alameda Research’s assets. Sam Bankman Fried’s conglomerate halted all withdrawals soon after and 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 market structure has also changed as the trading volume on DEXs increased.

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. Binance traders, among others, have also reported difficulties with margin calculations. DEX users also complained of auto-deleveraging which happens when counterparties do not meet 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. The exchanges are not to blame for this situation, nor is it evidence of malfeasance. Instead, the use of leverage on illiquid markets is what caused these problems. 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 of the normal market conditions.

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. Rumors of bankruptcy could also have been a factor, leading market makers to avoid taking on additional risks.

The Bitcoin derivatives markets may need several days to assess the full extent of damage. Traders will also have to wait to see if the level $105,000 is going to be the support for the market or whether there are further corrections ahead.

This is not intended as an investment or legal advice. This article is solely for informational purposes. It does not represent or reflect Cointelegraph’s views.