Cryptocurrency markets witnessed a rapid depletion of approximately $100 billion within a 24-hour timeframe. Despite the market capitalization’s recent ascent, analysts argue that these sudden crashes and downturns are not only commonplace but also essential.
The total crypto market capitalization plummeted from a 21-month peak of $1.82 trillion to roughly $1.71 trillion, with nearly $100 billion exiting the space in the past day.
Crypto Market Correction Sparks Volatility Surge
While such 5% market flushes might appear alarming, they are considered standard occurrences in the digital asset landscape, where high leverage is prevalent.
On January 4, technical analyst ‘CrediBULL Crypto’ emphasized that funding rates had returned to baseline before the drop, signaling a natural correction in the market. Open interest, representing unsettled contracts, experienced a moderate flush-out, a regular phenomenon accompanying fluctuations in the crypto space.
“We needed this washout the market was too frothy and overheated.”
*ignores the fact that funding was actually already pretty much back to baseline before the drop actually occurred*
It’s cool to say things that fit your narrative so you can say “I told you so” even if the data… pic.twitter.com/xB3H6caADd
— CrediBULL Crypto (@CredibleCrypto) January 3, 2024
The analyst clarified that this level of liquidation was within the average range, devoid of the excessive magnitude observed during periods of market overheating and overleveraging.
“This correction is deemed ‘normal’ for overall market health,” stated Coinglass, citing nearly $700 million in liquidations within the past 24 hours. Notably, approximately 85% of these liquidations were long positions, primarily dominated by BTC.
Willy Woo, a technical analyst, observed, “Long demand in the system is getting frothy,” highlighting the heightened activity in the “basis trade.” This strategy involves buying spot BTC while shorting perpetual futures, creating a hedged trade to capitalize on the funding rate paid by bullish speculators.
Long demand in the system is getting frothy.
The basis trade*** on BTC perpetuals is earning 75% right now, a level unseen since the 2021 bull market.
*** buying spot BTC while shorting perpetual futures in a hedged trade to collect the funding rate paid by bullish speculators pic.twitter.com/upNkrU6iSu
— Willy Woo (@woonomic) January 4, 2024
ETF Speculation in Crypto Markets
A reminiscent leverage flush-out occurred in early December, with analysts attributing it to “over-leveraged derivatives degens” at the time.
Amidst rumors linking the crypto crash to reports about the SEC withholding approval for spot Bitcoin ETFs this week, industry experts express confidence in potential approvals by January 10, particularly for the Ark 21 Shares ETP. However, a rejection could lead to a Bitcoin price retreat into the $30,000 range.
Related: Bitcoin (BTC) Sees $4,000 Price Drop: 3 Potential Causes
As of the latest update, crypto markets have mostly stabilized, with BTC trading at $43,197 and ETH at $2,291.
