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 era of spot BTC ETFs, and leveraged losses are amplified by liquidity pressures.

• As portfolio margin systems broke down, the liquidation of collateral assets reached $5 billion.

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

BitcoinBTCThe price of Bitcoin (BTC) dropped by 16,700 dollars on Friday. That’s a 13,7% drop in just eight hours. In BTC, the sharp fall to $105,000 erased 13% of all futures interest. These figures, despite the large losses and increasing liquidations are not unusual for Bitcoin.

Inclusion of 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.

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, a situation that escalated when a report disclosed 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.

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 In January 2024, the United States will launch an ETF. 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 exchangeThe company reported that bullish positions worth $2.6 billion were forcedly closed. 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 using portfolio risk management rather than isolated risks. The exchanges are not to blame for this situation, nor is it evidence of fraud. This is the result of traders using leverage on relatively illiquid market. Altcoins that plunged by 40% or even more triggered a crash in the traders’ deposits.

Bitcoin/USDT perpetual futures The crash saw BTC/USD prices drop by 5% and the market has yet to return to its pre-event level. 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. Rumors of bankruptcy could also have been a factor, leading market makers to avoid taking on additional risks.

The Bitcoin derivatives market may need several days to assess the full extent of damage. Traders will then be able to gauge whether or not the level $105,000 is going to serve as a base, and if a correction continues.

This is not legal or investment advise. It is intended as general information only. This article is solely for informational purposes. It does not represent or reflect Cointelegraph’s views.