The price of Bitcoin (BTC) and Ethereum Ether (ETH) fell 13% and 21% within a few minutes on August 2. This move closed more than $ 1 billion in futures contracts as the BTC / USD pair fell from around $ 12,000 to $ 10,550.
1-hour chart of the BTC / USD pair. Source: trade view
There appear to be two main reasons for the sudden liquidation cascade. First, The volume on the cryptocurrency market tends to decrease on weekends. Second, the market has been heavily influenced by long contracts or buyers.
Snapshot of the cryptocurrency market, August 2nd. Source: Coin360
The surprise train at the weekend hits the crypto market again
The cryptocurrency market is prone to major liquidations over the weekend. Liquidity often drops because there are fewer active traders on the market. Lower volume leads to massive price movements as cryptocurrencies become more vulnerable.
Mass liquidations are more likely at the weekend as a large liquidation could trigger a cascade of liquidations. For example, if a long contract is signed, the buyer is forced to sell in the market, which leads to selling pressure.
When hundreds of millions of dollars in long contracts were settled, Bitcoin and Ether fell quickly. Bitcoin declined from $ 12,000 to $ 10,600 in 15 minutes, while ether dropped from $ 417 to $ 300.
However, the massive liquidations have taken place several times in the past five months. Certain, On the so-called “Black Thursday” on March 13th, the settlements totaled one billion dollars. Shortly before halving on May 11, the price of Bitcoin dropped to USD 8,100, which led to massive liquidations.
Bitcoin and Ethereum were heavily influenced by buyers
In the past few days, especially after the surge in bitcoin above $ 11,000, the cryptocurrency market has fluctuated a lot alongside buyers. Funding rates for Bitcoin and Ether were approaching levels that were unsustainable over a long period of time.
Futures exchanges such as BitMEX and Binance Futures use a mechanism called “financing” to strike a balance in the market. If the vast majority of market participants have long contracts, holders of short contracts are motivated with a fee and vice versa.
Before the fall, Bitcoin’s funding rate was 0.0721%. Since the average BTC financing rate is around 0.01%, the market has been dominated by long contracts.
The market imbalance was worse for ether. The ETH funding rate was 0.21%, indicating a clear bullish trend. According to the comparison, however, the expected funding rate of ETH is 0.19%. This suggests that long ETH contracts, unlike Bitcoin, have not been removed.
Ether financing rate on important futures exchanges. Source: Skew
Michael van de Poppe, a trader on the Amsterdam Stock Exchange, expected Ether to fall to $ 300 as a result. He said::
“Let’s look at $ ETH at $ 300-320.”
Currently, some traders are expecting a side action for the next few days as Bitcoin has recovered to an important support level of $ 11,300 and a CME futures gap is likely to arise on Monday given the closing price of $ 11,630 on Friday. .
“The bullish scenario depends on the crucial threshold of $ 11,300 to $ 11,400 as the axis for maintaining bitcoin prices.”Van de Poppe explained in his latest technical analysis from BTC.
Meanwhile in the medium term The Bitcoin price trend is growing increasingly optimistic. When asked if BTC will reach a new all-time high, Kelvin Koh of Spartan Black said::
“Without a doubt. BTC has peaked in each of the last three cycles, and this will not be an exception. The effects of scarcity, halving, and the entry of more capital into cryptocurrencies will ensure this.”