The Bitcoin and overall crypto market has seen a large influx of liquidations over the past 48 hours as leveraged traders have had their margin called.
Most eyes have been on the Bitcoin futures market, where more than $3 billion has been liquidated in the past 48 hours. Pain has also been felt within decentralized finance—better known as DeFi—as those that use digital assets as collateral found their loans come within certain parameters that mandated liquidation.
In bull markets, traders often leverage their capital, either via margin trading platforms or through decentralized finance, to make more money from a perpetuation of that bull trend.
Through DeFi, users have recently begun to leverage their capital en-masse by depositing Wrapped Bitcoin and Ethereum, then borrowing against that collateral in hopes of improving their returns.
According to DeBank, which tracks liquidations in the DeFi space, more than $100 million worth of positions has been liquidated in the past 24 hours.
DeBank indicates that most of this liquidation has taken place on Compound, where $100 million alone has been wiped.
Most of these liquidations have been users like the aforementioned, who deposited Wrapped Bitcoin or other heavily-utilized collateral to source a line of credit from protocols like Compound, Aave, or Maker.
Bitcoin’s recent drop may have caused pain across the cryptocurrency space, though most analysts remain bullish on the asset in the long run.
Mike McGlone, a commodities analyst at Bloomberg Intelligence, recently noted that:
“#Bitcoin vs. #Tesla May Mark 2021 — Performance since the announcement that the world’s largest automaker by market cap is allocating some of its wealth to Bitcoin may indicate an inflection point favoring alternative assets, notably the crypto…”
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Raoul Pal, a former head of hedge fund sales at Goldman Sachs and the CEO of Real Vision, also noted in his own analysis that BTC remains in a macro bull trend despite recent weakness
Is Bitcoin a safe-haven? Not this week.
The world’s leading cryptocurrency accelerated its losses on Tuesday as traders decided to realize their profits. It shed up to $9,318, or 17.19 percent, to an intraday low of $44,888. The move downhill extended its week-to-date losses to a little over 22 percent.
The BTC/USD exchange rate slipped below a crucial support offered by its 20-day exponential moving average. In recent history, the pair’s breakdown below the green wave increasieed its possibility to extend the downtrend towards the next wave target near the 50-day moving average (blue).
Coincidentally, the blue wave sits right in the region that earlier was resistance to Bitcoin’s uptrend attempts. Now a flipped support, the area anticipates to act like a magnet to Bitcoin’s downtrend, exposing the cryptocurrency to levels near $40,000.
Bitcoin’s losses coincided with a similar sell-off across the US stock market, led by a retreat in the technology stocks. Futures tied to the S&P 500 slipped 0.5 percent, logging its fifth consecutive day in the red. Meanwhile, contracts for the Nasdaq Composite plunged 1.5 percent, suggesting that tech stocks would continue to lead the markets lower.
A sharp rise in US government bond yields has reduced investors’ appetite for riskier assets in recent sessions in recent sessions. The upside momentum in bond rates particularly affected markets that experienced massive bull runs during 2020. Thanks to its higher yields, traders and investors merely rotated out of their profitable positions to seek stable returns in the bond market.
Investors note it is the momentum at which yields have increased, rather than their level, that is hurting riskier assets. Bitcoin, which traded inversely to bond yields all across 2020, tends to move lower as a result.
The fall across the stock and cryptocurrency market has shifted focus on Jerome Powell’s testimony before the US Senate Banking Committee on Tuesday.
The Federal Reserve Chairman will likely signal that his office would keep the quantitative easing policies at place until the economy achieves “maximum employment” and inflation rates above 2 percent. That includes a monthly purchase of $120 billion worth of government bonds and mortgage-backed securities and a near-zero interest rate.
Bitcoin anticipates to hold its long-term bullish bias as long as Fed continues its dovish program. More upside tailwinds for the cryptocurrency also appears in the US president Joe Biden’s plans to pass a $1.9tn coronavirus stimulus package through the House of Representatives this Friday
