Breaking down the 20% Bitcoin market crash: over $2.8 billion liquidated 🚨 This article is 4 years old...
Breaking down the 20% Bitcoin market crash: over $2.8 billion liquidated
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Updated: Jan. 12, 2021 at 11:03 pm UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
It’s been a bloody past day for the Bitcoin and broader crypto market.
Early this weekend, the cryptocurrency market was gunning for new all-time highs: Ethereum had pushed to $1,350, altcoins were up by double digits, and Bitcoin was holding key supports in the $40,000-41,000 region.
Now, Bitcoin trades for $30,600 and Ethereum trades for under $1000. That’s to say, the crypto market is down in excess of 20 percent from the recent highs.
Here are some key data points about this correction and more about what analysts think comes next for the battered market.
How much was liquidated?
Prior to the correction, the crypto market was extremely overleveraged.
The funding rates of futures markets were at extremely high levels of 0.1 percent per eight hours for Bitcoin. The funding rate is the fee that long positions pay short positions on a recurring basis to ensure the price of the future trends to the price of the index over time.
These high funding rates meant that long positions were paying a large amount of capital to short positions to remain long.
According to ByBt, more than $2.8 billion worth of leveraged crypto positions were liquidated in the past 24 hours.
A majority of that capital was in Bitcoin and Ethereum futures markets, where most of the leveraged trading takes place.
This represents one of the largest days of liquidation in the cryptocurrency market ever, potentially ever.
Despite the correction, the funding rates of the crypto futures markets remain on the high side.
What comes next?
While Bitcoin’s ongoing correction may have had a technical component to it, it appears that the drop is a byproduct of macro trends.
The U.S. dollar index, which tracks the U.S. dollar against a basket of foreign currencies, is up 0.6 percent in the past 24 hours. While this may not sound like a lot, in a market worth trillions of dollars, small shifts have global impacts.
Analyst “Bitcoin Jack,” who has been one of the most accurate analysts over the past year, says that he is derisking his portfolio in light of the U.S. dollar bouncing along with other macroeconomic trends:
“I’m derisking too – too much to lose. Futures seem degenerate, dollar bet, bonds moving, USA tension. Bitcoin remains risk on – we had fun. Protect capital during uncertainty – make capital again later. I could be wrong but I’m rather safe than sorry. Where to? Depends on legacy.”
I’m derisking too – too much to lose
Futures seem degenerate, dollar bet, bonds moving, USA tension
Bitcoin remains risk on – we had fun
Protect capital during uncertainty – make capital again later
I could be wrong but I’m rather safe than sorry
Where to? Depends on legacy https://t.co/n71EXjK6dK
— //Bitcoin ?ack ? (@BTC_JackSparrow) January 11, 2021
Despite this macro backdrop, many say that the fundamentals of crypto are better than ever, analysts say.
Bitcoin Market Data
At the time of press 11:03 pm UTC on Jan. 12, 2021, Bitcoin is ranked #1 by market cap and the price is down 1.09% over the past 24 hours. Bitcoin has a market capitalization of $628.27 billion with a 24-hour trading volume of $75.16 billion. Learn more about Bitcoin ›
Crypto Market Summary
At the time of press 11:03 pm UTC on Jan. 12, 2021, the total crypto market is valued at at $920.14 billion with a 24-hour volume of $156.57 billion. Bitcoin dominance is currently at 68.39%. Learn more about the crypto market ›
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Bitcoin, a decentralized currency that defies the sway of central banks or administrators, transacts electronically, circumventing intermediaries via a peer-to-peer network.
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Ethereum is a decentralized, open-source blockchain platform that enables the creation of smart contracts and decentralized applications (DApps).