Why did the price of Bitcoin and ETH sharply correct overnight?

In the last 24 hours, Futures positions worth $ 1.89 billion were liquidated after Bitcoin (BTC) and Ether (ETH) fell sharply below $ 46,000 on Binance.

15-minute price chart of the BTC / USDT (Binance) pair. Source: TradingView.com

Most of the settlements came from Bitcoin and Ether, which accounted for $ 555 million and $ 336 million respectively. But, altcoins, such as XRP, EOS, and Litecoin (LTC) also suffered huge sell-offs as the market crashed.

Settlements through cryptocurrency exchanges. Source: Twitter @CryptoRank_io

Most of the liquidations occurred on Binance, while Bitfinex saw the bare minimum. This suggests that the former may have the highest proportion of novice traders, according to Paolo Ardoino, CTO of Bitfinex.

“Bitfinex has almost a billion in open interest, but an extremely low settlement rate compared to the competition”Ardoino explained.

“Finex seems to have traders who use leverage a little more carefully.”

Factors behind the short-term price decline

Bitcoin was relatively resilient compared to the rest of the market during the correction. Mostly large-cap altcoins and DeFi tokens saw the biggest losses, with Cosmos (ATOM) and SushiSwap (SUSHI) falling by more than 20% in a single day.

The market likely corrected as a result of the altcoin futures market being extremely overheated for an extended period.

In recent weeks, many altcoins on platforms like Binance Futures saw funding rates rise from around 0.3% to 0.7%. This is 30 to 70 times higher than the average of 0.01%.

This is likely the reason behind Bitcoin’s relatively small drop of around 7% compared to the 20% to 30% corrections in the altcoin market.

But, Unlike Bitcoin, Ether showed short-term weakness even as Bitcoin was recovering to a new all-time high, as Cointelegraph reported.

Therefore, when BTC started to fall, Ether experienced a much larger drop compared to Bitcoin, dropping 9% in the same period.

Throughout February, especially when the ETH / BTC pair showed strength, ETH experienced a minor pullback compared to Bitcoin when it entered price discovery. ETH’s weakness against Bitcoin had a negative impact on the altcoin market in the last 24 hours.

Why a recovery is likely

According to Ki Young Ju, the CEO of CryptoQuant, there are enough stable coin stocks in the cryptocurrency exchange market to activate another advantage for Bitcoin.

In the cryptocurrency market, marginalized capital is often stored in stablecoins rather than cash or bank accounts, as they are much easier and faster to implement on exchanges.. Ki said that it is an ideal time to buy Bitcoin given that a new recovery is more likely. The wrote:

“If you are a long-term investor, now is the time to buy $ BTC. I’m not sure how many corrections will be on the way, but the on-chain indicator says there are enough stablecoins on exchanges compared to Bitcoins to get another advantage. “

Proportion of stablecoins. Source: CryptoQuant

In addition to the favorable fundamentals, altcoins have started to rally quickly after a capitulation-like correction.

Following the strong relief rally for altcoin, Bitcoin and Ether followed suit, rallying to $ 48,000 and $ 1,800, respectively.

The combination of the rapid rally in large-cap altcoins and the abundance of stablecoins on exchanges increases the likelihood that BTC’s rally will continue.

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