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

The key takeaways

• Bitcoin’s price drop on Friday shows that the volatility of spot BTC ETFs continues, and leverage is increasing losses.

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

• Bitcoin derivatives show that traders are still cautious despite low liquidity and rumours of bankruptcy. Monday was also a US national holiday.

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 figures, despite the large losses and cascading liquidity, are not unusual for Bitcoin.

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 There are 48 days where Bitcoin experienced even more severe corrections.

On Nov. 9, 20,22, Bitcoin experienced a 16.1% correction intraday, plummeting to $16,590. This episode occurred at the same time as FTX collapse, which grew when a news report indicated that nearly 40 percent 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.

Bitcoin volatility is high despite ETFs and market maturity

It is possible to argue that crashes within the day of 10 % or greater have decreased in frequency since the arrival of the spot Bitcoin exchange-traded fund The ETF will be launched in January 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.

These events include an intraday fall of 15.4% on Aug. 5 2024, as well as a 13.3% corrective correction on Mar. 5, 2024 and a drop of 10.5% just two weeks after the debut date for spot ETFs in January, 2024. No matter the price fluctuations, the $5 billion liquidation of Bitcoin futures on Friday indicates that it may take several months or even many years to stabilize the market.

Hyperliquid, a perpetual decentralized exchangeThe company reported that bullish positions worth $2.6 billion were forcedly closed. Binance traders, among others, have also reported difficulties with margin calculations. 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. The exchanges are not to blame for this situation, nor is it evidence of fraud. Instead, the use of leverage in relatively volatile markets is what caused these problems. Some altcoins dropped 40% or more and triggered the collapse of traders’ deposit collateral.

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.

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.

The article does not provide legal advice or investment recommendations and it is intended for informational purposes only. This article is solely for informational purposes. It does not represent or reflect Cointelegraph’s views.