Reetika, a Dubai-based Bitcoin (BTC) and crypto trader, was shocked to find the crypto markets had experienced an unexpected and major sell-off when she checked prices after waking up. Bitcoin plunged on Thursday, causing the crypto markets to lose 6.7% in overall capitalization in one of the biggest drops in recent months. Litecoin (LTC) tumbled by 14%, leading to more than $1 billion in crypto futures being liquidated.
Speculation arose as to the cause of the sell-off, with some pointing to space exploration company SpaceX’s supposed Bitcoin sales and others citing the bankruptcy of China Evergreen’s. However, neither of these events may have impacted prices. SpaceX merely wrote down the value of its Bitcoin holdings, and asset write-downs are common among businesses.
Professional traders believe market structure and liquidations were likely the cause of the sudden drop instead of a singular fundamental catalyst. The market had been relatively illiquid and flat, creating conditions ripe for sudden movements. Open interest refers to the number of unsettled futures contracts for any financial asset, and in a flat market, the rapid building up of a significant amount of futures positions can cause prices to fall quickly in the event of a large sell-off.
Data shows most long liquidations took place on crypto exchange OKX, accounting for nearly 40% of the entire market. Rising interest rates in the U.S. may have also contributed to the fall.
Traders are now waiting on a Grayscale court ruling about the issuance of an exchange-traded fund (ETF), which is expected to be announced on Friday. Depending on the ruling, the market could surge or fall further.
The break below $28,500 led to material volumes of longs being liquidated, said Decentral Park Capital trader Lewis Harland. This has been combined with spot selling ahead of the date (likely anticipating further delays).