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 show that traders are still cautious, amid low liquidity and insolvency speculation, as well as the Monday US National Holiday, which led to partial market closing.

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. Despite steep losses, and the cascading of liquidations these figures are nothing new in Bitcoin history.

The word excludes 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 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. The episode was a coincidence with the 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

Some might argue that the number of intraday crashes exceeding 10% has decreased since the introduction of 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 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. 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.

This is because even those traders with significant profits saw their positions abruptly closed, which created major problems for anyone using portfolio margins rather than just 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 likely responsible. 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

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. These are solely the opinions, views, and thoughts of the author and may not reflect the opinions and views of Cointelegraph.