Bitcoin will be fine: Just look at the Data

Takeaways from the conference:

• 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 amid the low liquidity and insolvency speculation, as well as Monday’s US National Holiday, resulting in a partial closing of markets.

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 rapid liquidation, 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 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, a situation that escalated when a report showed that almost 40% of Alameda Research assets were linked to FTX 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

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 could be premature to say that the volatility is truly easing. This market structure is also evolving as volumes of trading on the decentralized exchanges have increased.

These events include an intraday fall of 15.4% on August 5, 20,24, a March 5 correction of 13.3%, and the 10.5% decline just two weeks after the debut date for spot ETFs in January, 2024. 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. 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

The crash on Friday was a clear disruption. However, the low liquidity during the weekend could be blamed, particularly since US bond markets were closed Monday due to a holiday. Rumors of bankruptcy could also have been a factor, leading market makers to avoid taking on additional risks.

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.