Bitcoin calms down with sudden falls, mass liquidations

(Bloomberg) — A period of unusual calm in cryptocurrency markets abruptly ended this week as the idea of higher interest rates for longer triggered a sell-off in risky assets like bitcoin, prompting a mass liquidation of bullish bets.

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This path pushed bitcoin from nearly $29,000 to $25,314 in a 24-hour period. More than $1 billion in short positions have been canceled, according to Coinglass data. The native cryptocurrency is down 5.2% at $26,203 as of 10:14 a.m. in New York.

Bitcoin is still nearly 60% higher than where it started the year, handily outperforming other well-performing assets like technology stocks. But several headwinds — from rising bond yields to regulatory pressures and economic weakness in China — threaten to undermine the appeal of assets such as cryptocurrencies.

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Cryptocurrency traders are now focusing on the $25,000 level for Bitcoin, below which the options put indicates the possibility of another series of liquidations.

“With limited catalysts to push Bitcoin higher in the short term, a dip below $25,000 could put the bears in charge, and if the decline in global risk assets continues, Bitcoin could face more… from backing off.” eToro Company.

A Wall Street Journal report citing documents that Elon Musk’s SpaceX sold its bitcoin holdings after taking a $373 million cut also weighed on sentiment. It was not clear from the magazine’s report when SpaceX sold its bitcoin.

While the broader markets see a sell-off as the dollar weakens, the sell-off in digital tokens amid poor liquidity continued unabated on Friday. The gauge of the top 100 digital tokens fell more than 5% at one point, outpacing a 0.2% decline in the regional stock index. Ether fell 3 percent, while Cardano and Solana fell 2.2 percent and 3.5 percent, respectively.

The largest single liquidation order occurred on Binance, Coinglass said on its website, with a value of $55.92 million. CoinDesk reported that the total amount of Bitcoin liquidations was the largest in a single day since the market turmoil of June 2022.

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Bitcoin’s $25,000 level has the highest level of open interest among put options expiring August 25, according to data from Deribit. Should it drop below this level, sellers of these positions will be forced to liquidate or hedge their positions, putting more pressure on prices.

ETF support

The slide has nearly erased the reported gains in the wake of BlackRock’s Inc.’s surprise filing. for the Bitcoin ETF on June 15. After surging 72% in the first quarter, Bitcoin is down nearly 8% since the end of March. The token fell by 64% last year amid a series of scandals and bankruptcies in the industry.

A degree of optimism crept into the market after Bloomberg News reported that the US Securities and Exchange Commission is preparing to allow the first exchange-traded funds based on ether futures.

The decline in bitcoin comes after a period in which the cryptocurrency traded in a narrow range for several months. Metrics that measure the volatility of the native cryptocurrency’s price are trending lower, with the 90-day volatility reaching its lowest level since 2016 this week, according to data compiled by Bloomberg.

“There was optimism earlier in the week that a decision on the Grayscale Bitcoin ETF would come this week, but that passed without anything coming to light,” said Shiliang Tang, chief investment officer at crypto investment firm LedgerPrime. “Moreover, traditional markets were weak all week with SPX and technology selling off, 10-year interest rates hitting record highs, dollar stalling in bid, and weak credit data and the Chinese economy all being negatives for risky assets.”