🌎 Crypto Market Turmoil: Bitcoin and Ethereum Face Massive Liquidations

What caused Bitcoin and Ethereum to plunge into a liquidation spiral? With traders losing millions, how did market conditions shift so quickly, and what’s next?

Massive Liquidations Rock the Crypto Market

The crypto market is experiencing significant turbulence, with Bitcoin and Ethereum leading the charge. Between July 29 and August 28, the entire market lost approximately 15% of its value, dropping from a market cap of $2.48 trillion to $2.11 trillion.

As of August 28, Bitcoin experienced a fresh decline of over 4% in the last 24 hours, trading at $60,000. This came after nearly touching $58,000 before a slight recovery. Just a month ago, on July 27, Bitcoin was trading at $69,400, marking a sharp decline of about 14%.

On August 27, spot Bitcoin ETFs saw outflows of around $127 million, the first outflow after eight consecutive days of inflows. This shift could be a significant factor behind the sharp correction we are witnessing.

Similarly, Ethereum mirrored Bitcoin’s moves, with a nearly 4% drop to its current level of $2,500. Over the past month, Ethereum has experienced a 22% drop. Spot Ethereum ETFs also saw cumulative outflows of over $115 million between August 15 and August 27, with no signs of positive inflows.

Massive Liquidations Rock the Crypto Market

The recent sharp downturn in the crypto market can be traced to several interconnected events. In the last 24 hours as of August 28, nearly $320 million in crypto positions were liquidated. Most of these liquidations hit long traders, who faced losses of $261 million, indicating that many traders were betting on the market going up.

Bitcoin led the charge in these liquidations, with over $101 million wiped out, of which $82 million came from long positions. Ethereum wasn’t far behind, with nearly $96 million in liquidations, again with most coming from long positions.

On August 25, Bitcoin’s funding rate on the DyDx exchange hit its highest level since Bitcoin’s all-time high in March. Funding rates are payments exchanged between buyers and sellers of perpetual contracts to keep their positions open. When these rates spike, it often signals that traders are heavily favoring one side of the market.

This overconfidence in long positions was partly fueled by Federal Reserve Chair Jerome Powell’s recent comments, hinting at a possible interest rate cut in September. Many traders took this as a sign to load up on Bitcoin and Ethereum, expecting the market to rally. However, when funding rates get too high in one direction, they can become a ticking time bomb.

Santiment analysts noted that extreme funding rates often lead to liquidations, driving the market in the opposite direction. Adding to the market’s woes, news broke that a federal grand jury had returned a revised indictment against former President Donald Trump. This political uncertainty likely caused traders to go “risk-off,” selling off their crypto holdings to move into safer assets like cash.

What’s Next for the Crypto Market?

Despite the recent dip, some analysts believe that Bitcoin is still holding strong above crucial support levels. Michaël van de Poppe, a crypto analyst, highlights that Bitcoin remains above a key level at $61,000. According to him, maintaining this level could pave the way for a new all-time high.

Ali Martinez, a technical and on-chain analyst, observed that a significant number of top traders on Binance are going long on Bitcoin. In fact, nearly 65.22% of them are buying the dip, betting on a rebound.

CryptoCon, a Bitcoin technical analyst, believes that the recent low volatility phase is part of Bitcoin’s typical mid-cycle behavior. He notes that this phase mirrors similar periods in previous cycles, such as those in 2021, 2017, and 2013.

However, not all analysts are entirely bullish. Emperor, another respected figure in the crypto space, offers a more cautious perspective. He advises traders to be careful, particularly with Bitcoin’s failure to sustain above key monthly and quarterly levels. He suggests that the best strategy right now is to take quick trades rather than hold onto positions for too long.

Caution Ahead

For the crypto market to stage a meaningful rebound, Bitcoin must first hold firmly above the critical $60,000 level. This support zone is essential for maintaining market confidence. From there, the next challenge is to break through the $65,000 resistance, a level that has previously acted as a barrier.

If Bitcoin can clear this hurdle, it could pave the way for a broader market recovery, with Ethereum likely to follow suit. Once Ethereum stabilizes and gains upward momentum, other altcoins could also see a resurgence.

Additionally, the U.S. presidential election race and the Federal Reserve’s next move could largely impact market sentiment. While the potential for Bitcoin to reach new heights exists, it’s important to manage your risk carefully and avoid making impulsive decisions. The crypto market is notoriously volatile, so staying informed and only investing what you can afford to lose is the best approach.