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.

BitcoinBTC( ) fell by $16,700 Friday. This represents a correction of 13.7% in less than 8 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 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 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, 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

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.

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. 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. Traders on Binance and other platforms have reported problems with the calculation of portfolio margins. DEX users have also been complaining about the auto-deleveraging that occurs when counterparties don’t meet their 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 isolated risk-management. It is important to note that this isn’t necessarily a result of malpractice or exchanges. Instead, it is the byproduct 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 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. These are solely the opinions, views, and thoughts of the author and may not reflect the opinions and views of Cointelegraph.