The infamous cryptocurrency pump-and-dump or dash-and-smash was on full display overnight, when shortly after midnight ET, bitcoin hit a one year high of $12,112 - rising 20% in just the past week when it hit $10,000 on July 27...
... before it was hit by a furious wave of selling that sent the price as low as $10,550. The catalyst: more than $1 billion worth of futures were sold in seconds, sparking the now familiar weekend liquidation waterfall, which also dragged other notable cryptos such as Ethereum and Litcoin lower, after both had seen outsized gains in recent days.
- First, the volume in the cryptocurrency market tends to drop during weekends.
- Second, the market was heavily swayed to longs or buyers.
Mass liquidations become more likely during the weekend because one large liquidation could trigger a cascade of liquidations. As Bloomberg wrote this morning, the notable crypto moves both last weekend and this one recall a similar phenomenon in 2019, "when outsized gains took place numerous times during Saturday and Sunday trading as the price rose from a few thousand dollars into five-digit range."
And sure enough, as hundreds of millions of dollars worth of long contracts began to get liquidated, Bitcoin and Ether dropped rapidly. Bitcoin declined from $12,000 to $10,600 within 15 minutes, while ether declined from $417 to $300.
Needless to say, such a furious selloff is not in the best interest of the seller, who would be much better served with a measured selling strategy instead of taking out the entire bidstack in one transaction, a move which traditionally has been linked with price manipulation (a la "banging the close") and repricing a security to a far lower level. If it unclear who or what may have been behind tonight's furious liquidation.
Tonight's mass liquidation was strikingly similar to comparable moves observed in the past five months, most notably, on the so-called “Black Thursday” on March 13, when $1 billion worth of liquidations occurred. Similarly, right before the halving on May 11, the price of Bitcoin dropped to $8,100 resulting in mass liquidations.
As CoinTelegraph adds, in the last week as Bitcoin soared 20%, the cryptocurrency market was heavily swayed to the side of the buyers and the funding rates of Bitcoin and Ether were nearing levels that are not sustainable over a prolonged period.
Meanwhile, futures exchanges, like BitMEX and Binance Futures, utilize a mechanism called “funding” to implement balance in the market. When the overwhelming majority of market participants are holding long contracts, then short holders are incentivized with a fee and vice versa. Prior to the drop, the funding rate of Bitcoin was hovering at around 0.0721%. Since the average funding rate of BTC is at around 0.01%, the market was dominated by long contracts.
The market imbalance was even worse for Ether. The ETH funding rate was at 0.21%, which indicates significant bullish bias. After the liquidations, the predicted funding rate of ETH is at 0.19%, which means some more pain may be coming for longs.
Michael van de Poppe, a trader at the Amsterdam Stock Exchange, previously anticipated Ether to drop to $300 as a result. He said: "Let’s see $ETH at $300-320."
For now, some traders anticipate sideways action for the days ahead as Bitcoin has rebounded to a key support level at $11,300 and a CME futures gap will likely emerge on Monday given Friday’s close price of $11,630.
“Clearing resistance at $10,000-$10,500, which coincided with the downtrend line from the late 2017 highs and first-quarter 2020 highs, established a higher high for Bitcoin confirming a new tactical uptrend,” said Rob Sluymer, technical strategist at Fundstrat Global Advisors LLC. “In the short-term Bitcoin’s daily momentum indicators are overbought (as they are for gold), but beyond some very near-term choppy trading, Bitcoin is likely to continue to trend to its next resistance level at $13,800.”
"The bullish scenario depends on the crucial threshold of $11,300-11,400 as the pivot to hold for the price of Bitcoin," Van de Poppe explained in his latest BTC technical analysis.
In the medium-term, there is increasing optimism about the price trend for Bitcoin as many Japanese traders appear to have jumped on the upward momentum bandwagon, similar to what happened in late 2017 when a frenzy of Asian buying bushed bitcoin to its all time high price just shy of $20,000.
When asked whether BTC will hit a new all-time high, Spartan Black’s Kelvin Koh said: "Without a doubt. BTC hit a new ATH in each of the last 3 cycles and this one will be no exception. The scarcity effect, the halving and more capital coming into crypto will ensure that."