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 BTC spot ETFs continues, while leverage and liquidity are a major factor in accelerating losses.

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

• Bitcoin derivatives show that traders are still cautious amid rumors about insolvency and low liquidity. Monday was also a US national holiday.

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 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 $15 590. This episode occurred at the same time as FTX collapse, which erupted after a news report revealed that the native token of FTX, FTT, was responsible for nearly 40% Alameda Research’s assets. Sam Bankman Fried’s conglomerate halted all withdrawals soon after and 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 the United States on January 20, 2024. Still, considering Bitcoin’s historical four-year cycleBut it would be premature to say that the volatility is now under control. It is also true that the structure of the markets has changed, as trading volume at decentralized exchanges 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. 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 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. 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 several trading 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 a further correction ahead.

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.