What caused bitcoin and ethereum to spiral into liquidation? With traders losing millions, how did market conditions change so quickly and what's next?
The cryptocurrency market is playing hide-and-seek, with bitcoin (btc) and ethereum (eth) leading the charge as they hover around key price levels.
The entire cryptocurrency market has been in turmoil, losing roughly 15% of its value between July 29 and August 28. The market capitalization has declined from $2.48 trillion to $2.11 trillion, reflecting the widespread bearish sentiment.
On August 28, bitcoin suffered a further decline, falling by more than 4% in the past 24 hours to trade at $60,000 levels. This drop followed a near-complete drop to $58,000 before a slight recovery.
Just a month ago, on July 27, btc was comfortably sitting at $69,400, marking a sharp drop of roughly 14%.
On August 27, btc spot ETFs saw heavy outflows, with around $127 million withdrawn, marking the first day of outflows after eight consecutive days of inflows. This shift could be a key factor behind the sharp correction we are witnessing.
Meanwhile, eth has mirrored btc’s moves, with its price dropping by almost 4% to its current level of $2,500. However, eth’s journey over the past month has been even more bumpy, experiencing a 22% drop in just 30 days.
Challenges for eth have been intensified by spot eth ETFs, which saw cumulative gains eth-etf” target=”_blank” rel=””>money outflows of more than $115 million between August 15 and 27, with no signs of positive inflows.
<h2 class="wp-block-heading" id="massive-liquidations-rock-the-crypto-market”>Massive liquidations shake the cryptocurrency market
The recent sharp decline in the cryptocurrency market can be attributed to several interconnected events, creating a perfect storm for the sell-off we are witnessing.
In the past 24 hours to August 28, nearly $320 million in crypto positions have been liquidated, according to Coinglass data.
The vast majority of these liquidations affected traders in long positions, who faced losses of $261 million, dwarfing the $58 million in liquidations on short positions, indicating that many traders were betting the market would go up, but the market had other plans.
bitcoin led the list of liquidations, with over $101 million lost. Of this amount, $82 million came from long positions, meaning traders who were confident that bitcoin would continue to rise were caught off guard.
ethereum was not far behind, with nearly $96 million in liquidations, most of which came from long positions. But why did the market take such a sharp turn?
Just a few days ago, on August 25, the bitcoin funding rate on the DyDx exchange hit its highest level since btc's all-time high in March, according to Santiment.
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Funding rates are essentially payments exchanged between buyers and sellers of perpetual contracts to keep their positions open. When these rates spike, it is usually a sign that traders are heavily favoring one side of the market – in this case, the long position in bitcoin.
This overconfidence in long positions was partly due to fed by recent comments from Federal Reserve Chairman Jerome Powell, where he hinted at a possible interest rate cut in September.
Many traders took this as a signal to stock up on bitcoin and ethereum, hoping the market would recover. However, when funding rates are too high in one direction, they can become a ticking time bomb.
Santiment analysts noted that extreme funding rates often lead to liquidations, which drives the market in the opposite direction, which is exactly what happened here.
Adding fuel to the fire, on Tuesday it emerged that a federal grand jury had returned a revised indictment against former President Donald Trump.
Trump, who has positioned himself as a pro-cryptocurrency candidate for the upcoming US presidential election, could influence market sentiment.
CNBC crypto-market-today.html” target=”_blank” rel=””>reported that the uncertainty surrounding this political event likely caused traders to become “aggressive,” meaning they sold their cryptocurrency holdings to move into safer assets like cash.
<h2 class="wp-block-heading" id="whats-next-for-the-crypto-market”>What's next for the cryptocurrency market?
Despite the recent drop, some analysts believe that bitcoin is still holding strong above crucial support levels.
Respected cryptocurrency analyst Michaël van de Poppe notes that bitcoin is holding above a key level of $61,000. According to him, holding this level could pave the way to a new all-time high.
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He notes that with the current momentum, especially with the excitement around bitcoin ETFs, there is a strong possibility that btc can go higher if it holds this support.
Meanwhile, Ali Martinez, a technical and blockchain analyst, observed that a significant number of Binance’s top traders are long bitcoin. In fact, almost 65.22% of them are buying the dips, betting on a rally.
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bitcoin technical analyst CryptoCon believes that the recent low volatility phase is nothing new and is part of typical mid-cycle behavior for bitcoin. He notes that this phase mirrors similar periods in previous cycles, such as those in 2021, 2017, and 2013.
According to him, those who anticipate the top soon may find themselves behind as the market resumes its uptrend.
Not all analysts are entirely optimistic, however. Emperor, another respected figure in the cryptocurrency space, offers a more cautious outlook. He has advised traders to be cautious, particularly in light of bitcoin’s failure to hold above key monthly and quarterly levels.
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The Emperor suggests that the best strategy right now is to make quick trades rather than holding positions for too long.
He views the recent price action as a temporary pullback rather than the start of a downtrend, but emphasizes the importance of managing risk and waiting for price to react before making big moves.
Caution ahead
For the cryptocurrency market to experience a significant rally, btc must first hold firm above the critical $60,000 level. This support zone is essential to maintain market confidence.
From there, the next challenge is to overcome the resistance at $65,000, a level that has previously acted as a barrier.
If bitcoin manages to overcome this hurdle, it could pave the way for a broader market recovery, and eth is likely to follow suit. Once eth stabilizes and gains bullish momentum, other altcoins could also experience a resurgence.
However, the US presidential election race is heating up and the candidates' policies on cryptocurrencies could greatly affect market sentiment.
All eyes are also on the Federal Reserve's next move, with a possible interest rate cut in September that could either boost or slow market recovery efforts.
While there is potential for bitcoin to reach new heights, it is important to always manage risk carefully and avoid making impulsive decisions.
The cryptocurrency market is notoriously volatile, so staying informed and investing only what you can afford to lose is the best approach.
Disclaimer: This article does not constitute investment advice. The content and materials appearing on this page are for educational purposes only.
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