The price of Bitcoin, the most prominent cryptocurrency, fell below $26,000 on Thursday August 17, 2023, marking the first time since June that the value of the digital asset has dropped below that level.
The sell-offs have caused widespread fear in the cryptocurrency business, and traders have suffered losses of billions and billions of dollars as a result.
According to data provided by Coinglass, cryptocurrency traders lost a total of more than $1.04 billion in liquid assets over the course of the last 24 hours. Liquidations take place when an exchange terminates a leveraged trading position because the trader has lost some or all of the initial money that they invested in the transaction.
This can happen when the price of an asset suddenly drops, and it can lead to a chain reaction of liquidations since traders will be obliged to liquidate their positions in order to cover their losses. This can happen when the price of an asset suddenly drops.
The Bitcoin liquidations were especially harsh, resulting in the closure of long positions (bets that the price would climb) totalling approximately $472 million. Since June 2022, when the price of the main cryptocurrency dropped to $17,000, this was the highest level of market liquidations seen in a single day.
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What caused the crash of Bitcoin
Despite the fact that there does not appear to be any agreement regarding the cause of the abrupt drop in market value, various crypto industry analysts have expressed their theories.
The majority of the ideas that have been proposed revolve around the fact that Elon Musk’s SpaceX is rumoured to be selling its Bitcoin holdings, the bankruptcy of a Chinese property behemoth, and concerns regarding interest rate increases.
According to a report that was published by the Wall Street Journal on Thursday August 17, SpaceX may have sold some or all of its $373 million worth of Bitcoin holdings, which caused alarm in the cryptocurrency world. It is vital to keep in mind that whenever a prominent figure in the industry, particularly someone as influential as Elon Musk, decides to sell Bitcoin, it will put downward pressure on the price of the cryptocurrency.
The item was published in the WSJ fewer than three hours before the market meltdown, which occurred less than three hours later.
Also on Wednesday August 16, Evergrande, which is China’s second-largest property developer, filed for Chapter 15 bankruptcy in New York. This step, which was intended to safeguard its assets within the United States from its creditors, was taken by Evergrande.
Because over half (50%) of the Tether stablecoin’s holdings are backed by commercial paper and certificates of deposit, there were concerns regarding the potential outcomes that could occur with regard to this cryptocurrency.
Tether, on the other hand, has indicated that the company does not own any exposure to Evergrande: “Tether does not hold any commercial paper or other debt or securities issued by Evergrande and has never done so. As we have indicated in our published statements and our most recent assurance attestation with a reporting date of June 30, 2021, the vast majority of the commercial paper held by Tether is in A-2 and above rated issuers.”
The way forward
According to a number of different technical measurements, the volatility that has been plaguing the cryptocurrency market might not be gone just yet. According to an article on CryptoQuant, certain measures are beginning to develop a pattern that may result in increased price volatility for the cryptocurrency.
Open interest and projected leverage ratio are the two indicators that make up this metric. When talking about Bitcoin futures contracts, the term “open interest” refers to the total number of open positions across all derivative markets.
An increase in this metric means that investors are opening more positions on the futures market right now, whilst a reduction in this metric suggests that some investors are reducing their positions or getting liquidated out of their holdings in the market.
This would imply that a liquidation event involving the shorts is going to take place at some point in the near future.