This was a red week for crypto! Bitcoin melted to $109,000, Ethereum dropped to $4,017, and the total crypto market cap is clinging to around $3.7 trillion, despite a slight surge in the past 24 hours. And, now the news is: $260 billion was liquidated from the total market cap in a week! Also, the market saw $346 million wiped out in the past 24 hours.
Reasons for huge liquidations and wipeouts
Remember, last Monday, $220 billion worth of coins were wiped out, causing prices to tumble. This has made significant changes to the market cap, which continues, with $260 billion wipeout in a week. This week also started with $1.68 billion in liquidations in positions.
Now, coming to the current scenario, the latest liquidations and wipeouts arise from multiple reasons that we need to watch out for seriously. For the newbies, liquidation occurs when an exchange closes traders’ leveraged positions because their collateral can no longer cover the losses, and wipeout refers to a broader loss in market value.
Over-leverage and derivative exposure
Many traders go for long and short positions. As they are highly exposed to such derivatives, and when the market moves against the positions, huge forced liquidation happens.
Strong economic data and less hope for rate cuts
A new report showed that the US economy is still strong with good economic performance. This reduces the possibility of further interest rate cuts. Since many investors have been anticipating further cuts to borrow money more cheaply, the likelihood of no rate cut has dampened their expectations, leading them to sell off crypto assets.
Huge spot ETF outflows
Massive outflow of $897.6 million in Bitcoin spot ETFs and $795.8 million in Ethereum spot ETFs have caused a price dip and further trigger liquidations.
Ethereum leads the sell-off
Although not the main reason, $311 million worth of positions tied to Ethereum were liquidated yesterday, contributing to the overall liquidation.
Greed and fear index
The greed and fear index is a significant catalyst in stirring the crypto price and related liquidations and wipeouts. This currently stands at 34, indicating that traders are leaning toward fear. A few days ago, the index stayed at 20, showing high fear in the market.
Liquidation cascade
Liquidations and wipeouts are often interconnected. Liquidations fuel price drops, and price drops impact more liquidations. This results in a massive wipeout from the market.
The millions of liquidations and billions of wipeouts are putting the crypto market in a boiling pot, with major cryptocurrencies significantly losing their strength. With fear growing, leverage unwinding, and big money pulling out, the crypto market is entangled in a storm — one that could either cleanse the excess or drag prices even lower.
