Today, the overall cryptocurrency market cap fell more than 5% from yesterday’s prices and there were significant liquidations.
Cryptocurrency Price Drop and Today’s Liquidations
As for Bitcoin, its price has today fallen below $60,000 again.
Yesterday the day started with a return below $63,000, and during the day it then fell below $62,000.
But after the American stock markets closed, there was a real mini crash.
In fact, in just one hour, the price went from $61,800 to $58,000, only to immediately rebound to $59,000.
The sudden drop was 6%, then the small rebound that followed reduced it to -5%.
It is worth remembering that movements like these in the cryptocurrency markets are usual, so nothing unusual has happened.
Additionally, an increase in volatility was expected for this week, after two weeks of stagnation followed by an 8% increase.
Furthermore, the current price level is not only in line with that of last Wednesday, when the +8% increase began that took it back above $64,000 on Saturday, but it is also above the fateful threshold of $57,000 that constituted the bottom of the long, still ongoing, lateralization phase that began at the end of February, with rare and brief exceptions.
Ethereum
The narrative is a little different, however, regarding the price of Ethereum and some altcoins.
In fact, last night the price of ETH dropped from $2,580 to $2,400, only to bounce back to around $2,470.
This is a significantly lower level than the bottom of the lateralization phase of the last few months, placed above $2,800.
The problem with Ethereum during this period started in early August, when for example even Bitcoin fell well below the low of the sideways period. However, Bitcoin price returned above it within three days, while Ethereum has yet to stably return above $2,800 since then.
It is likely that the ETH sales from the new Grayscale ETF on Ethereum (ETHE) will weigh heavily, which has been generating continuous global outflows from ETH ETFs for several days. It should be remembered that ETHE has been around for many years and in July it was simply transformed into an ETF.
The trend of many altcoins follows that of Ethereum, more than that of Bitcoin, and in fact, Bitcoin’s dominance has increased from 54% at the beginning of July to 57% currently. In particular, since Saturday, it has increased from 57% to 57.3%.
Liquidations
Given that many leveraged long positions had been opened, last night’s drop triggered a series of large liquidations which in turn pushed the price further down.
When a leveraged long position threatens to incur losses, it is automatically liquidated instantly, along with the sale of the underlying asset. Such sales usually in turn cause the price to fall further, which has a cascading effect on other leveraged long positions.
Last night, in just one hour, over $110 million of long positions were automatically liquidated in the cryptocurrency market.
This caused the Bitcoin price to drop, not stopping at $60,000, but continuing to drop below $59,000, stopping only at $58,000. At this point, once the forced liquidations stopped, it was able to make a small rebound and climb back above $59,000.
The causes
The drop to $58,000 is certainly due to forced liquidations of long positions. But these were triggered by an earlier decline, caused by different reasons.
Note that today the Dollar Index, which measures the strength of the US dollar, rose from 100.5 to 100.8 points, although it did so a few hours after the mini-crash in the cryptocurrency market.
However, this mini-collapse occurred while US stock markets were closed, and before Asian markets reopened.
However, it is possible that it was the effect of the late closings of the US stock exchanges that influenced the current dollar market. For example, even the Chinese stock exchanges are down sharply today. It is therefore very likely that last night’s mini-crash in the cryptocurrency market had external origins.
Moreover, to tell the truth, even the very definition of mini-crollo does not seem adequate to describe what, in the crypto markets, appears to be an absolutely usual phenomenon.
Sentiment remains very negative, with the Fear and Enthusiasm Index falling into sharply negative territory (30 out of 100). Such negative sentiment, with Bitcoin price at $59,000, reveals that it is likely the distressed altcoins that are creating fear in the crypto markets.
The future
Analysts had widely expected an increase in volatility this week.
It was not yet clear which direction it could take. So much so that at that time, after yesterday’s decline, the chances of a rebound could even have increased.
During this historic period that has lasted since late February, the price of Bitcoin has only moved sideways in a fairly wide range. Meanwhile, altcoins are suffering more.
It is possible that the situation will only be unblocked in the fall. Therefore, an increase in volatility could simply mean that instead of standing still, the price starts to move, but perhaps still remaining in a lateralizing range.
