After a period of relative quiet, a sudden and massive sell-off in the cryptocurrency markets took traders and enthusiasts off guard. One of the largest drops in the market capitalization of cryptocurrencies in recent months has been caused by the unanticipated dip, which was the outcome of a number of unrelated reasons.
The market value of all cryptocurrencies fell by 6.7% on Thursday as traders hurried to dump their holdings in Bitcoin, the leading cryptocurrency. By approximately 06:00 UTC on Friday, Bitcoin’s 24-hour decline from $28,500 to $25,000 on Binance had reached as much as 9%. The rippling effects of this downward spiral caused significant tokens like litecoin (LTC) to fall by 14%. Crypto futures liquidations reached a 14-month high of more than $1 billion as a result of the severe market turmoil.
Although some have attributed the decline to SpaceX’s alleged Bitcoin sales or China Evergrande’s bankruptcy, there is little evidence to back up these assertions. According to a Wall Street Journal article, SpaceX did actually downgrade the value of its Bitcoin holdings in 2021 and 2022, but this occurred before to the market fall, and there is no evidence that the business sold any additional Bitcoin.
Expert traders and market analysts contend that rather than a single fundamental reason, the abrupt decrease was more likely caused by market structure and liquidations. Prior to the sell-off, the cryptocurrency market had been largely flat and illiquid, making it vulnerable to sudden fluctuations.
An surge in long positions and a violation of the $28,500 support level, according to trader Lewis Harland at Decentral Park Capital, caused a cascade of long liquidations. Nearly 40% of the market was liquidated, with the majority of these transactions taking place on the cryptocurrency exchange OKX.
The rising interest rates in the United States could also be a role in the market slump. Harland stressed that rising interest rates, especially the 10-year yield hitting 15-year highs, had a negative impact on risk assets generally. Additional bond sales could result in downward price moves throughout the weekend.
Furthermore, experts from the on-chain data platform CryptoQuant saw a change in short traders’ sentiment that resulted in higher financing rates. The price gap between futures and spot markets is the basis for the regular payments paid by traders known as funding rates. Because traders are encouraged to take positions on one side of the market, high rates can promote price volatility.
Additionally, traders are keeping a careful eye on a court decision concerning Grayscale’s planned exchange-traded fund (ETF). In the Grayscale v. SEC case, a federal appeals court is about to make a ruling that might have a big impact on the cryptocurrency market. Market growth is anticipated if Grayscale wins, while market volatility can increase if the decision goes against Grayscale.