Bitcoin will be fine: Just look at the Data

Takeaways from the conference:

• 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 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. This sharp decline to $105,000 has wiped out 13 percent of the total open interest for futures in BTC. In spite of the massive losses and liquidation, this is not an unusual situation 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 There are 48 days where Bitcoin experienced even more severe corrections.

The most recent instance occurred in 2022 on November 9, when Bitcoin fell 16.1% within a single day, to a low of $15,590. This episode occurred at the same time as FTX collapse, which exploded after a news report revealed 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 Bitcoin volatility is high even though the market has matured due to ETFs

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. As trading volumes have risen on the decentralized exchanges, so has market structure.

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 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 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 using portfolio risk management rather than isolated risks. The exchanges are not to blame for this situation, nor is it evidence of fraud. Instead, the use of leverage in illiquid markets is what caused these problems. Some altcoins dropped 40% or more and triggered the collapse of traders’ deposit collateral.

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. Normal, these discrepancies present market makers with easy profit opportunities. However, something is preventing the return of normal 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.

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.