"Hodl" no more?
the gloomy weekend cryptocurrency beating that dragged bitcoinBTC) below $ 50,000 and other devastated digital currencies has decisively dampened investor optimism, some of whom were predicting a run to $ 100,000 just a few weeks ago.
Driven by uncertainty over the Federal Reserve Moving slowly towards tighter monetary policy in the face of rising inflation and global fears about the new Omicron variant of COVID-19, the dramatic drop was weighed down by sell-offs in the crypto derivatives market, market players say.
On Friday alone, Bitcoin sat above $ 57,000 before the risk aversion hits stocks it spilled into the crypto world, dragging the top digital currency up 20% on the day to less than $ 43,000. On Sunday, the coin bounced more than 2% to trade around 49,000.
Bitcoin "has been the best-performing asset of all asset classes in 10 of the last 12 years in which it has been traded," Perianne Boring, president and founder of the Digital Chamber of Commerce, told Yahoo Finance on Monday. blockchain advocacy group.
"Having 30-40% volatility in any given month is normal for bitcoin. This is not a unique situation," Boring added.
According to estimates by Larry Cermak at The Block Research, nearly $ 5 billion in open interest was wiped out in just half an hour. That helped reduce the total market capitalization of the cryptocurrency to about $ 2.3 trillion, abruptly out of last month's record above $ 2.6 trillion.
In some parts of the market, the price of BTC collapsed even lower, with some exchanges priced as low as $ 28,000 according to Jason Lau, chief operating officer of cryptocurrency exchange Okcoin.
"As is often the case, cascading settlements in derivatives markets fueled exaggerated moves," explained Okcoin's Lau.
Because fewer people typically trade on weekends, crypto markets typically deal with much lower levels of liquidity, providing even less protection against plummets. Lau and investors say thin market conditions fueled the carnage in price action on Saturday.
On Sunday, some cryptocurrencies made up some lost ground. Ether (ETH-USD) sank by more than 20%, but recovered some losses, currently hovering around $ 4,100. Smaller blockchain units where liquidity is even lower, like Solana (SOL1-USD), they are also receiving a net correction of 20%.
However, defying the trend was Terra's Moon (LUNA1-USD) - to token pegged to stablecoin what has he seen Most significant crypto gains in recent weeks. With a rise of more than 10% on the day, Luna changed her initial drop to a weekend bull run that is hitting back-to-back all-time highs.
'I went south'
This weekend's sell-off is just the latest of several sudden drops this year that have sent some investors reeling, including as El Salvador's President Nayib Bukele, whose country became the first sovereign government to adopt. Bitcoin as legal tender, he proclaimed that he `` bought the crash. '' "
The 'buy the dip' philosophy is driven by Bitcoin investors' belief that no matter how strong the dip is, the asset will continue to rise in the long run, thanks to free-spending governments and loose monetary policy that cause inflation.
"Fundamentally, the continuation of monetary expansion and declining purchasing power is not going away and will only generate more interest in scarce assets like bitcoin," Okcoin's Lau told Yahoo Finance.
But the short-term sentiment around the asset has clearly changed. Bitcoin has seen "wild swings" of 20-30% in previous bull runs before peaking, according to Anto Paroian, chief operating officer of ARK36, a crypto hedge fund.
However, this time, BTC's 20-week moving average, a key indicator of the bull market, "has now been decisively violated," Paroian told Yahoo Finance, warning that "the outlook is currently bearish on the short and medium term ", as some investors see. to get rid of your riskiest assets.
With the Fed seemingly more concerned about inflation and rising fears from Omnicron, investors are backing off hopes that Bitcoin will hit $ 100,000, a "highly anticipated milestone," according to Baxter Hines, chief investment officer at Honeycomb Digital Investments. , based in Texas.
Bitcoin's rally has been driven in part by borrowed money or leveraged positions on derivatives exchanges, with some using the digital currency as a margin guarantee. As such, a heavily leveraged market is vulnerable to shocks that exacerbate violent movements.
During the last quarter, money locked in decentralized financial protocols exceeded $ 100 billion, according to DeFi pulse, a four-fold increase since the beginning of the year.
And when cryptocurrency prices "fell south" on Friday, so did collateral backing loans to derivatives traders, Hines noted, increasing margin calls forcing traders to liquidate positions to cover losses as well as volatility.
Since open interest has already fallen sharply, the slide could get worse when the regular session begins on Monday. This is because the Chicago Mercantile Exchange (CME), which represents a growing level of open interest volume in BTC futures, does not trade on Saturdays.
"It will be interesting to see what happens when Monday rolls around," Lau added.
David Hollerith covers cryptocurrencies for Yahoo Finance. FOLLOW @dshollers.
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