The cryptocurrency markets are coming out of one of their worst sell-offs in history, with over $300 billion having been erased from digital asset markets over the weekend.
The main catalyst for this fall was the Bitcoin drop, which fell over 20% on Monday, reaching its lowest level in six months. It briefly marked under $50,000 after hitting $70,000 the week prior. Several other leading cryptocurrencies have suffered even worse downfalls, with eight of the top 10 most valuable tokens falling by over 20% since Sunday.
As a result, more than 300,000 crypto traders were liquidated from their leveraged positions or collateral trades, according to data from Coinglass. Ether-tracked futures recorded over $340 million in liquidated bets, data shows, with bitcoin futures losses leading at $420 million. Futures tracking Solana’s SOL, dogecoin, xrp and pepe took on $75 million in cumulative liquidations.
As of Tuesday morning, the Bitcoin price has recovered, reaching over $55,000 as BTC added 6%, its highest 24-hour price increase since May. Ether and XRP added 8%, BNB Chain’s BNB rose 12%, and Solana’s SOL surged 16%, according to CoinGecko data.
Bitcoin price changes between August 4 and August 5, 2024
The cause of the crash
The market meltdown was largely a result of Japan’s decision to raise interest rates, causing global markets to crash, as well as rumours of market maker Jump Trading liquidating its crypto business. Moreover, rising unemployment rates in the US and what investors described as “disappointing earnings reports”, particularly from Big Tech firms, also contributed to a widespread equities sell-off, which impacted digital assets.
“This time around, the crypto correction is about technical factors and flows, not about fundamentals, and has been exacerbated by speculation that crypto market makers are moving their risk to centralised exchanges, presumably for liquidation,” said Manuel Villegas, Next Generation Research at Julius Baer.
“Bid-ask spreads, slippage, and liquidations have all increased considerably, dragging down a significant tranche of the market depth. Overall, order books have taken a hit and volatility should be expected going forward as the rest of the top-down factors continue to unwind.”
The latest crypto wipeout is nonetheless expected to be felt by a broader base of investors after the SEC this year approved new spot exchange-traded funds for Bitcoin and Ether.
