Bitcoin will be fine: Just 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 liquidations reached $5 billion. This highlights risks associated with illiquid assets.

• Bitcoin derivatives show that traders are still cautious in the face of low liquidity and rumors about bankruptcy. Monday is also a US holiday.

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 cascading liquidity, 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 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. The episode was a coincidence with the FTX collapse, which grew after 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

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 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. 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 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 who use portfolio margin instead of isolated risk management. The exchanges are not to blame for this situation, nor is it evidence of fraud. This is the result of using leverage and relatively illiquid market. 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. 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 information contained in this article is meant to provide general knowledge and not as investment or legal advice. These are solely the opinions, views, and thoughts of the author and may not reflect the opinions and views of Cointelegraph.