The bitcoin price peaked around $ 12,100 tonight around 4:00 AM. However, that did not last long. The Bitcoin price lost over $ 1,400 in minutes after peaking. The price dropped to a low of $ 10,600 as a result, but has since recovered.
The Bitcoin and Ethereum price fell tonight in a few minutes with 13% and 21% respectively. This crash liquidated over $ 1 billion in futures contracts.
There seem to be two main reasons behind the sudden cascade of liquidations. In this article we explain the factors.
A stream of liquidations
During the weekend, the crypto market tends to see large liquidations. Liquidity will drop because there are fewer active traders on the market. A lower volume then often leads to large price movements.
One big sale can therefore cause a cascade of liquidations during the weekend. One stop loss then triggers the other stop loss and this creates enormous sales pressure.
When hundreds of millions of dollars in long contracts were liquidated, the Bitcoin and Ethereum price crashed. Bitcoin fell from $ 12,000 to $ 10,600 within 15 minutes, while the ETH price dropped from $ 417 to $ 300.
Lots of long contracts
In the past few days, especially after Bitcoin’s rise above USD 11,000, the market has been affected by buyers. Bitcoin and Ethereum funding rates approached levels that are unsustainable over a longer period of time.
Futures exchanges, such as BitMEX and Binance Futures, use a mechanism called “financing” to maintain balance in the market. When the vast majority of market participants have long contracts, short holders are encouraged with a fee and vice versa.
Prior to the decline, Bitcoin’s funding rate fluctuated around 0.0721%. As BTC’s average funding ratio is around 0.01%, the market was dominated by long contracts.
The market imbalance was even greater for Ethereum. The ETH financing rate was 0.21%. But after the liquidations, the predicted financing rate of ETH is 0.19%. That means that there are still a lot of long contracts.
What can we expect now?
Currently, crypto traders expect that a short consolidation phase is imminent. This as Bitcoin is back at a key USD 11,300 support level. Only when this limit is broken again can the course make another attempt to break the $ 12,000.
The price trend is still very positive in the long to medium term. Many analysts therefore expect Bitcoin to reach a new all-time high without a doubt. Kelvin Koh says:
“BTC achieved a new ATH in each of the last 3 cycles and it will be no exception. The scarcity effect, the halving and more capital that ends up in crypto will ensure this. ”