What You Need to Know:
- The unwinding of the Treasury basis trade is causing higher bond yields and reduced liquidity in financial markets.
- U.S. stock futures are declining, increasing Bitcoin’s vulnerability to further losses.
- A possible Bitcoin drop to the range of $73.8K-$74.4K could liquidate leveraged long positions.
Overview
The anxiety among investors is rising as the feared declines in risk assets, particularly cryptocurrencies like Bitcoin (BTC), seem to be unfolding. There is an expectation that BTC may dip below $74,000, potentially triggering liquidations of long positions.
Recent analysis from CoinDesk suggested that upcoming volatility might lead to significant downward movements for risk assets due to the unwinding of Treasury market arbitrage trades, reminiscent of the conditions before the COVID-19 market crash.
Rising Treasury Yields
Observers note a significant uptick in Treasury yields, particularly a 70 basis points spike in the U.S. 10-year yields, which are now around 4.5%. In tandem, the 30-year yields are experiencing similar increases. Typically, bond prices move inversely to yields, which climb during periods of risk aversion as investors flock to safer assets.
Analyst Justin Low from ForexLive indicated that the situation is becoming critical, with the 30-year Treasury yield nearing the 5% threshold and 10-year yields previously touching a low of 3.88% recently, indicating market distress that affects not just Treasuries but the broader financial landscape.
Market Impact
On the stock market side, futures linked to the S&P 500 fell by 2%, highlighting the increased volatility amid reactions to Treasury yield fluctuations. Earlier today, Bitcoin briefly traded below the $75,000 mark but managed to bounce back to the $76,000 area according to CoinDesk’s tracking.
Increased risk sentiment has heightened concerns about Bitcoin’s price dipping down to the $73.8K-$74.4K levels, igniting risks for long position liquidations on major exchanges. Liquidation refers to the automatic closure of trading positions due to insufficient margin, often resulting in a further slide in prices.
Based on analytics from Hyblock Capital, potential liquidation zones are expected at $73,800 to $74,400. Other identified zones for larger liquidations include $69,800-$70,000 and $66,100-$67,700. A movement towards $70K could lead Bitcoin down an additional $200, impacting many retail traders’ stop-loss triggers.
On the other hand, areas for potential short liquidations have been projected at $80,900-$81,000, $85,500-$86,700, and $89,500-$92,600.
