BTC fell below $26,000 in the short term, and more than 170,000 people liquidated their positions. Why did it "waterfall" in the early morning?

Author: Mary Liu

At around 5:30 AM on Friday, Beijing time, Bitcoin suddenly plummeted by more than 8%, once falling to $25,409, and the price of Bitcoin on the encryption exchange Bitfinex was even lower, hitting a low of $24,715, and then rebounded to over $26,000 . The drop pushed bitcoin's market capitalization below $500 billion for the first time since June 16 and the lowest since June 20.

CoinGlass data shows that as of press time, the plunge has resulted in more than $1 billion in liquidations in the past 24 hours, including $472 million in Bitcoin liquidations and $302 million in Ethereum liquidations, with most of the positions affected being long positions.

The reason for the decline?

The crypto community attributed some of the decline to a report in the Wall Street Journal that SpaceX's balance sheet had written down a record $373 million in bitcoin in 2021-2022, which Musk said in a speech in 2021. It is mentioned that SpaceX owns bitcoin, but the exact amount has not been disclosed since the company is private.

Musk has been a longtime cryptocurrency enthusiast, featuring the popular Dogecoin symbol "Ð" on his X social media profile. We all know that any news related to Musk can affect the market.

In another news that could spur the sell-off, Chinese property developer Evergrande filed for bankruptcy protection in the United States, raising concerns among investors that problems in China's property market could spill over to other parts of the global economy.

Bitcoin prices have been on a tear in recent weeks, erasing about half of the gains made after BlackRock filed for a bitcoin ETF on June 15.

According to Bloomberg, one of the macro factors behind the sell-off is the continued surge in global interest rates, especially in the United States, where the 30-year Treasury rate rose to 4.42%, the highest level since 2011. The 10-year Treasury yield was at 4.32, just one basis point below its 15-year high. This not only suppressed cryptocurrency prices, but also dealt a blow to risky assets in traditional markets.

Shiliang Tang, chief investment officer of cryptocurrency investment company LedgerPrime, said: "Earlier this week, people were optimistic that the resolution of the Grayscale Bitcoin ETF would come out this week, but the resolution finally passed without any results. In addition, traditional Markets have been weak all week, with the S&P 500 and tech stocks selling off, 10-year rates hitting highs, the U.S. dollar up, weaker Chinese credit and economic data, all of which are not good for risk assets."

Derivatives markets are bearish on Bitcoin

A report from the U.S. Commodity Futures Trading Commission (CFTC) on the Commitment of Traders (COT) showed that leveraged funds -- hedge funds and commodity trading advisors -- increased their exposure to CME in the week ended Aug. 8. A bearish bet on listed cash-settled bitcoin futures.

"Two-thirds of their positions are short (shown in red) and one-third are long (shown in blue). That's since 2022. largest position since April 2019".

Lewitinn believes that while the improving trends and fundamentals in the cryptocurrency space continue to maintain optimism, it is now more time to focus on potential spillovers from the macro to broader risk assets and even cryptocurrencies.

Before this drop, bitcoin had been trading in a tight range for several months. A measure of price volatility in the native cryptocurrency has been trending lower, with 90-day volatility hitting its lowest level since 2016 this week, according to data compiled by Bloomberg. Analysts at cryptocurrency market intelligence firm Glassnode wrote in a recent report: “Digital asset markets continue to trade within historically low volatility ranges, with multiple indicators suggesting that investors have reached a peak in the $29,000 to $30,000 range. Extreme apathy and exhaustion. A very boring, volatile, sideways market may still be in place."

Brian D. Evans, CEO of venture capital firm BDE Ventures, said in his tweet: "I think Bitcoin is ready for a large volatility, and all technical indicators point to some kind of major squeeze in Bitcoin. Whether it’s up or down. We’ve seen this pattern before. Bitcoin fluctuates for a long period of time, volume shrinks, and then there’s a 10% rally or pullback that either creates panic or excites the market.”

Crypto analyst Will Clemente pointed out in his tweets that Bitcoin’s implied volatility has seen its largest single-day increase this year. The analyst predicts that as prices fall, the sell-off will intensify until support is found.