Key points to remember:
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Friday’s Bitcoin price plunge shows that volatility persists in the era of spot BTC ETFs, with the stress of leverage and liquidity amplifying losses.
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Liquidations reached $5 billion following the failure of portfolio margining schemes, highlighting the risks of illiquid collateral assets.
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Bitcoin derivatives suggest market makers remain cautious amid low liquidity, insolvency rumors and Monday’s U.S. National Holiday, leading to a partial market shutdown.
Bitcoin (BTC) plunged $16,700 on Friday, marking a 13.7% correction in less than eight hours. The sharp drop to $105,000 wiped out 13% of the total futures open interest in BTC terms. Despite the considerable losses and cascading liquidations, these figures are far from unusual in the history of Bitcoin.
Even excluding the “COVID crash” – an impressive 41.1% intraday drop on March 12, 2020 – which may have been amplified after the leading Bitcoin derivatives exchange at the time, BitMEX, faced liquidation issues and a brief 15-minute outage, there are still 48 other days where Bitcoin suffered even deeper corrections.
A more recent example occurred on November 9, 2022, when Bitcoin suffered a 16.1% intraday correction, plunging to $15,590. This episode coincided with the collapse of FTX, which worsened after a report revealed that nearly 40% of Alameda Research’s assets were tied to FTX’s native token, FTT. Sam Bankman-Fried’s conglomerate quickly halted its withdrawals and eventually filed for bankruptcy.
Bitcoin Volatility Remains High Despite ETF-Driven Market Maturity
One could argue that intraday crashes of 10% or more have become less frequent since the launch of the Bitcoin exchange-traded fund (ETF) in the United States in January 2024. Still, given Bitcoin’s historic four-year cycle, it may be premature to claim that volatility has truly subsided. Additionally, the market structure itself has evolved as trading volumes on decentralized exchanges (DEXs) have increased.
The post-ETF events in question include a 15.4% intraday crash on August 5, 2024, a 13.3% correction on March 5, 2024, and a 10.5% decline just two days after the spot ETF debuted in January 2024. Regardless of specific price swings, Friday’s $5 billion in Bitcoin futures liquidations suggest it could take months, even years, for the market to completely stabilize.
Hyperliquide, a decentralized perpetual exchange, reported that $2.6 billion in bullish positions were forcibly closed. Meanwhile, traders on several platforms, including Binance, have reported issues with portfolio margin calculation. At the same time, DEX users have complained about automatic deleveraging, which occurs when counterparties fail to meet margin requirements.
In essence, even traders who enjoyed large gains saw some positions unilaterally closed, creating major problems for those who used portfolio margining rather than isolated risk management. This situation is not necessarily the result of exchanges or proof of embezzlement; it is a byproduct of using leverage in relatively illiquid markets. Some altcoins plunged 40% or more, causing traders’ security deposits to collapse.
Bitcoin/USDT perpetual futures traded around 5% below BTC/USD spot prices during the crash and have yet to return to pre-event levels. Normally, such gaps would present easy opportunities for market makers, but something seems to be preventing a return to normal conditions.
Related: Crypto.com CEO calls for investigation into exchanges after $20 billion liquidations
While Friday’s crash clearly marked a disruption, it could also be attributed to tight liquidity over the weekend, particularly with U.S. bond markets closing Monday for a national holiday. Other potential factors include rumors of insolvency, which may have prompted market makers to avoid further risk.
As a result, it may take several days for Bitcoin derivatives markets to fully assess the extent of the damage and for traders to determine whether the $105,000 level will act as support or if a further correction is coming.
This article is intended for general information purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
