Since the beginning of the year, the price of Bitcoin (BTC) has been on a steady upward trend. Over the past two months, this trend has accelerated in anticipation of the approval of the first spot Bitcoin ETF in the US. The deadline for the Securities and Exchange Commission (SEC) to make a decision is next Wednesday. Some analysts expect an early approval of the Bitcoin ETF.
Bitcoin BTC/USD (Daily) / Charts: Tradingview
In line with these high expectations, many leveraged traders have entered the market. This can be seen by looking at the historical premiums for derivative contracts ("funding rates") on the centralised exchanges. Two days ago, the funding rate reached a local high of 43.8% on an annualised basis.
Historical Bitcoin funding rates / Source: Coinglass
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Bitcoin correction after questionable ETF headline
As is often the case in overbought conditions, Bitcoin eventually corrected. Some leveraged positions were taken out of the market. Within two hours, BTC fell -8.25%, liquidating over $590 million in long positions.
Historical crypto liquidations on centralised exchanges / Source: Coinglass
One trigger for the correction was a headline from crypto media "The Block" that appeared on the Bloomberg terminal without further context: "SEC to reject all Bitcoin spot ETFs in January, says Matrixport analyst". Just a few hours earlier, the quoted analyst had suggested that the imminent approval would take Bitcoin to $50,000. However, traders began selling on the news and forced liquidations of leveraged positions continued the negative price movement.
Liquidation cascade leads to altcoin flash-crash
Alternative cryptocurrencies (Altcoins) tend to have significantly lower liquidity than Bitcoin. As a result, liquidations often lead to deeper corrections. In dramatic cases, market makers withdraw their orders from the order book, leading to so-called "flash crashes". This happened yesterday in many cryptocurrencies.
Solana SOL/USDT (4h) / Charts: Tradingview
For example, the current market favourite, Solana (SOL), plunged -22.03% in three hours on the most liquid trading pair (SOL/USDT) on Binance. On less liquid exchanges such as Kraken, the cryptocurrency briefly traded at $71. While markets have recovered slightly since the flash crash, Bitcoin and most altcoins are still trading a few percent below their recent highs.
All information in this publication is provided for general information purposes only. The information provided in this publication does not constitute investment advice and is not intended as such. This publication does not constitute and is not intended as an offer, recommendation or solicitation to invest in any financial instrument, including cryptocurrencies and the like. The contents contained in the publication represent the personal opinions of the respective authors and are not suitable or intended as a basis for decision-making.
Investing in cryptocurrencies, is fundamentally associated with risk. The total loss of the invested capital cannot be excluded. Cryptocurrencies are very volatile and can therefore be exposed to extreme price fluctuations in a short period of time.