On Thursday, the cryptocurrency market experienced substantial turbulence, leading to the liquidation of over $400 million in open trades, marking the most significant liquidation event since the August crash.
Bitcoin (BTC) and Ethereum’s ether (ETH) witnessed sharp price swings, reaching milestone levels driven by growing optimism around bitcoin exchange-traded funds (ETFs). Both cryptocurrencies surpassed key thresholds not seen since May 2022, with BTC surpassing $36,000 and then $37,000, approaching $38,000 before retracing. Meanwhile, ETH exceeded $2,000, reaching its highest point since the April Ethereum upgrade known as Shanghai.
The positive sentiment surrounding ETFs, seen as potential catalysts for substantial capital inflows into the crypto industry, contributed to the upward movement. Reports indicated that Grayscale is in discussions with the Securities and Exchange Commission (SEC) about converting its bitcoin trust (GBTC) into an ETF. Additionally, BlackRock’s filing of a new corporate entity, the “iShares Ethereum Trust,” in Delaware fueled speculation about the firm’s involvement in Ethereum-related ETFs.
BTC, priced around $35,200 before the surge, faced a pullback towards that level after the news about ETH emerged, settling around $36,400.
The intense volatility during this period resulted in a significant leverage wipeout, leading to the liquidation of $241 million in short positions and approximately $200 million in long positions across all crypto assets, according to CoinGlass data.
Liquidations occur when exchanges forcefully close leveraged trading positions due to a partial or total loss of the trader’s funds or insufficient funds to maintain the trade. This dynamic can amplify market volatility as traders cover their positions, flushing out excessive leverage.
Thursday marked the largest daily liquidation event since August 17, when cryptocurrencies experienced a sharp sell-off, with BTC dropping to as low as $25,000 from around $29,000, resulting in $1 billion in total liquidations.
Open interest (OI), representing the total value of open options and futures contracts held by market participants for crypto derivatives, dipped below $24 billion from over $26 billion, as traders either dismantled or were compelled to close their leveraged positions, according to Coinalyze data.