Don't Worry, Bitcoin Will Recover Despite Recent 13% Loss in 8 Hours
Bitcoin's significant drop on Friday highlights ongoing market volatility and risk factors in cryptocurrency trading.
Bitcoin experienced a steep decline of $16,700 on Friday, resulting in $5 billion in futures liquidations, unveiling the instability within the market and renewed volatility amidst the prevalent optimism surrounding spot Bitcoin ETF approvals this year.
Key Insights:
- The recent drop in Bitcoin’s price illustrates that volatility continues to affect the market, amplified by leverage and liquidity issues.
- Liquidations soared to $5 billion as portfolio margin systems collapsed, raising concerns about the risks associated with illiquid collateral.
- Bitcoin derivatives indicate that market makers are exercising caution due to low liquidity and rumors of insolvency, coinciding with a national holiday in the U.S. leading to a partial market pause.
Bitcoin (BTC) saw a sharp decline of 13.7% in less than eight hours, dropping to $105,000. Although this loss is significant, such downturns are not unprecedented in Bitcoin’s history.
Bitcoin Intraday Crashes
Largest Bitcoin intraday crashes since May 2017. Source: TradingView / Cointelegraph
Excluding the major crash during the COVID pandemic, which saw a staggering 41.1% drop on March 12, 2020, Bitcoin has experienced over 48 days of even greater corrections throughout its history.
Another considerable drop took place on November 9, 2022, when Bitcoin plummeted 16.1% to $15,590 amid the FTX collapse after a report revealed significant exposure of Alameda Research’s assets to FTX’s native token, FTT. The drop followed widespread withdrawal halts and the filing for bankruptcy by Sam Bankman-Fried’s conglomerate.
Ongoing High Volatility Despite Market Maturity
While it’s suggested that 10% intraday crashes have occurred less often since the launch of the Bitcoin ETF in the U.S. in January 2024, evidence of Bitcoin’s historical price fluctuations indicates it may be too soon to claim a decrease in volatility. The trading landscape has shifted as decentralized exchange (DEX) volumes have surged.
Recent price movements after the ETF launch included a 15.4% drop on August 5, 2024, and a 10.5% plunge only two days post the ETF’s debut. The recent $5 billion in liquidations indicates that the market may require significant time to stabilize.
Hyperliquid, a decentralized exchange, faced enforced closures on $2.6 billion in bullish positions. Users across platforms like Binance reported issues regarding margin calculations, with DEX users encountering auto-deleveraging due to unmet margin requirements.
During the crash, Bitcoin/USDT perpetual futures prices were approximately 5% lower than the BTC/USD spot prices, indicating a failure to regain pre-crash levels, complicating typical market-making strategies.
Factors contributing to Friday’s crash may include low liquidity, particularly with the U.S. bond market closed for a national holiday on Monday. Additionally, insolvency rumors could have made market makers reluctant to absorb more risk.
Thus, it might take several days for the derivatives market to accurately assess the damage and for traders to determine if the $105,000 level will hold strong or if further declines are imminent.
This content is meant for informational purposes only and should not be considered as legal or investment advice. The views shared here do not necessarily reflect those of Cointelegraph.
