Copy of 2023-06-15T133320Z_1926139220_RC2QVS9G3TCH_RTRMADP_3_FINTECH-CRYPTO-BLACKROCK-BITCOIN-1692366342148
Crypto traders are now focusing on the $25,000 level for Bitcoin, below which options positioning suggests another cascade of liquidations could hit. Image Credit: REUTERS

London: A period of unusual calm in crypto markets ended abruptly this week as the notion of higher-for-longer interest rates sparked a selloff in risk assets like Bitcoin, leading to mass liquidations of bullish bets.

The rout pushed Bitcoin from near $29,000 to as low as $25,314 in a 24-hour span before the biggest token recovered slightly in early European trading on Friday. More than $1 billion of positions were unwound in the selloff, according to Coinglass data.

Bitcoin remains 60 per cent above where it started the year, handily beating other well-performing assets like technology stocks. But a multitude of headwinds - from rising bond yields to regulatory pressures and economic weakness in China - threaten to undermine the appeal of assets like cryptocurrencies.

Crypto traders are now focusing on the $25,000 level for Bitcoin, below which options positioning suggests another cascade of liquidations could hit.

“With limited catalysts to push Bitcoin higher in the short term, a fall below $25,000 could put bears in charge, and if the rout in global risk assets continues, Bitcoin could face further downside,” said Josh Gilbert, market analyst at trading and investing firm eToro.

A Wall Street Journal report citing documents that Elon Musk’s SpaceX has sold off its Bitcoin holdings after writing down $373 million also weighed on sentiment. It wasn’t clear from the Journal report when SpaceX had sold its Bitcoin.

While broader markets are seeing a pullback in the selling as the dollar weakened, the selloff in digital tokens amid thin liquidity continued unabated on Friday. The top 100 digital tokens gauge fell more than 5 per cent at one point, outstripping a 0.2 per cent decline in a regional stock index. Ether slipped 2 per cent while Cardano and Solana fell 2.6 per cent and 3.2 per cent, respectively.

The largest single liquidation order happened on Binance, and was worth $55.92 million, Coinglass said in its website. The total amount of Bitcoin liquidations was the biggest for a single day since the market turmoil of June 2022, CoinDesk reported.

The $25,000 level for Bitcoin has the highest level of open interest among put options for August 25 expiry, according to data from Deribit. Should it drop below that level, sellers of those puts would be forced to liquidate or hedge their positions, putting further pressure on prices.

ETF support

The slide has almost erased the gains registered in the wake of BlackRock’s Inc.’s surprise filing for a Bitcoin ETF on June 15. After surging 72 per cent in the first quarter, Bitcoin has declined almost 7 per cent since the end of March. The token tumbled 64 per cent last year amid a series of industry scandals and bankruptcies.

Some degree of optimism crept into the market after Bloomberg News reported that the US Securities and Exchange Commission is poised to allow the first exchange-traded funds based on Ether futures.

The drop in Bitcoin follows a period in which the cryptocurrency traded in a narrow range for months. Gauges that measure the price swings of the original cryptocurrency have been trending down, with the 90-day volatility reaching its lowest since 2016 this week, according to data compiled by Bloomberg.

“There was optimism earlier in the week that a resolution to the Grayscale Bitcoin ETF would come this week but that passed with nothing coming out,” Shiliang Tang, chief investment officer at crypto investment firm LedgerPrime, said. “Furthermore traditional markets have been weak all week with SPX and tech selling off, 10-year rates reaching highs and the dollar catching a bid, and China credit and econ data weakness, all of which are negatives for risk assets.”