The price of Bitcoin (BTC) and Ethereum’s Ether (ETH) plunged 13% and 21%, respectively, in minutes on August 2, respectively. The move liquidated over $ 1 billion in futures contracts while BTC / USD dropped from around $ 12,000 to as low as $ 10,550.
1 hour BTC / USD chart. Source: Tradingview
There appear to be two main reasons behind the sudden cascade of liquidations. First, the volume in the cryptocurrency market tends to decrease over the weekends. Second, the market has been heavily influenced by wishes or buyers.
Snapshot of the cryptocurrency market, 2 August. Source: Coin360
The surprise move over the weekend once again hits the cryptocurrency market
The cryptocurrency market tends to see large liquidations over the weekend. Liquidity often decreases as there are fewer active players on the market. Lower volume leads to massive price movements as cryptocurrencies become more vulnerable.
Mass liquidations become more likely over the weekend because a large liquidation could trigger a cascade of liquidations. When a long contract is liquidated, for example, it forces the buyer to sell on the market, causing selling pressure.
As hundreds of millions of dollars in long contracts began to liquidate, Bitcoin and Ether declined rapidly. Bitcoin declined from $ 12,000 to $ 10,600 in 15 minutes, while ether declined from $ 417 to $ 300.
But mass liquidations have occurred several times in the past five months. In particular, in the so-called “Black Thursday” of March 13, liquidations of $ 1 billion occurred. Likewise, just before the middle of May 11, Bitcoin’s price dropped to $ 8,100 resulting in massive liquidations.
Bitcoin and Ethereum have been heavily influenced by buyers
In the past few days, especially after the Bitcoin hike above $ 11,000, the cryptocurrency market has been heavily influenced by buyers. The funding rates of Bitcoin and Ether were near unsustainable levels for an extended period.
Futures exchanges, such as BitMEX and Binance Futures, use a mechanism called “financing” to implement balance in the market. When the vast majority of market participants hold long-term contracts, short-term holders are incentivized with a commission and vice versa.
Before the fall, Bitcoin’s funding rate was around 0.0721%. Since BTC’s average financing rate is around 0.01%, the market has been dominated by long contracts.
The market imbalance was even worse for Ether. The ETH funding rate was 0.21%, indicating a significant bullish bias. But after the liquidations, the ETH’s expected funding rate is 0.19%. It suggests that long ETHs have not been eliminated, unlike Bitcoin.
Aether funding rate in major futures markets. Source: inclination
Michael van de Poppe, a trader on the Amsterdam Stock Exchange, previously predicted that Ether would drop to $ 300 as a result. he She said:
“Let’s see $ ETH at $ 300-320.”
For now, some traders are expecting sideways action for the days ahead, as Bitcoin has returned to a key support level at $ 11,300 and a futures gap on the CME will likely emerge on Monday given Friday’s close price of $ 11,630.
“The bullish scenario depends on the crucial threshold of $ 11,300-11,400 as a pivot for the price of Bitcoin,” explained Van de Popped in his latest BTC technical analysis.
In the medium term, meanwhile, there is growing optimism about the price trend for Bitcoin. Asked if BTC will reach a new all-time high, Spartan Black’s Kelvin Koh She said:
“Without a doubt. BTC has hit a new ATH in each of the last 3 cycles and this will be no exception. The effect of scarcity, halving and more capital entering the cryptocurrency will guarantee it.