Summary:
Bitcoin plunged to $92,000 before rebounding to $98,000 within minutes.
The drop triggered over $1 billion in market liquidations, with 80% from long positions.
Long liquidations spiked to $390 million in four hours.
Market signals indicated an overheated market with rising funding rates.
Donald Trump's pro-crypto campaign linked to the recent surge in Bitcoin prices.
On Thursday, the price of Bitcoin, the world’s largest cryptocurrency, experienced a dramatic plunge, dropping to its lowest level in over a week. This sudden movement triggered over $1 billion in digital asset liquidations across the market, with 80% stemming from long positions.
The Price Plunge
Starting at 5:26 pm ET, Bitcoin's price fell 6.3% to a low of $92,000 within just three minutes. However, it quickly rebounded above $97,600 before dipping another 1%, according to Coinbase data. Despite a 1.7% slip on the day to $97,100, Bitcoin remains up over 39% in the past 30 days, fueled by bullish enthusiasm surrounding President-elect Donald Trump.
Market Liquidations
The unexpected drop resulted in more than $1.07 billion in liquidations, with around $817 million coming from traders betting on higher prices, as reported by CoinGlass. Notably, long liquidations surged to over $390 million in just four hours.
Overheated Market Signals
According to Pratik Kala, a portfolio manager at Apollo Crypto, this drop was anticipated due to rising funding rates, indicating an overheated market. "Lots of people longed on the $100,000 breakout with leverage and got flushed," Kala explained.
Funding rates are essentially payments between traders holding long and short positions in perpetual futures contracts, helping to keep contract prices aligned with the underlying asset's price. High funding rates often signal that many traders are heavily leaning towards one side, typically longs. When the market shifts against them, forced liquidations can lead to sharp price drops.
Profit-Taking Advice
Analysts previously advised market participants to be mindful of profit-taking, as assets rarely rise in a straight line. This volatility follows a surprise surge in Bitcoin above the $100,000 mark late Wednesday, reaching record highs above $103,000.
Political Influences
The recent increase in Bitcoin and other crypto prices has been largely attributed to Trump’s re-election campaign, which has been pro-crypto. Trump even claimed credit for Bitcoin's recent milestone, coinciding with his appointment of Paul Atkins as the next chairman of the Securities and Exchange Commission. Atkins is perceived as a more crypto-friendly choice than the current chairman, Gary Gensler.
Editor's note: Adds comments from Kala on funding rates.
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