Bitcoin and other cryptocurrencies fell sharply on Wednesday as heavy selling hit the crypto market. The fall was driven by forced selling of crypto positions and wider worries in financial markets.
(Pexel/Representative image) (Pexel)
Bitcoin, the biggest cryptocurrency, fell as much as 2.4% to $83,583. Ether dropped 3.9% to $2,594, while XRP and Solana also declined 4.2% and 3.3%, respectively, according to Bloomberg. About $550 million worth of crypto positions were liquidated in the past 24 hours. Coinglass data showed that the liquidation wave added to the pressure on Bitcoin and other digital assets.
$550 million crypto liquidation
The selling increased as traders were forced to close leveraged bets. Many traders had placed bets that crypto prices would rise, but falling prices triggered the liquidation of those positions, Coinglass data showed. Most of the liquidated positions were long positions, meaning traders were betting on prices going higher. When Bitcoin and other cryptocurrencies started falling, those bullish bets were forced out of the market.
Bitcoin price falls
Dan Khus, chief analyst at LVRG Research, said the latest fall looks more like a “leverage flush” than the start of a major downward trend. He said crowded bets on higher crypto prices were being forced out, with most liquidations coming from long positions, according to Bloomberg.
Bitcoin’s fall also came as investors became more cautious about risky assets. Renewed Iranian attacks in the Strait of Hormuz reduced hopes that shipping through the important waterway would soon return to pre-war levels.
Oil prices rise
Oil prices rose as concerns about the Strait of Hormuz increased. Brent crude climbed above $101 a barrel, adding to worries about inflation and the wider global economy, according to Bloomberg.
Also read: Why are US bond yields rising? Is it the Iran war or a stronger economy?
US stocks and bonds
The weakness was not limited to cryptocurrencies. US stock futures were little changed after the S&P 500 closed at a record high in the previous session, while Europe’s Stoxx 600 ended a three-day winning streak.
US Treasury yields also moved higher, showing continued pressure in bond markets. The yield on the 10-year Treasury climbed above 5.3%, while a recent recovery in bonds lost momentum, according to Bloomberg.
Fed meeting minutes
Traders are now waiting for the Federal Reserve’s meeting minutes for clues about interest rates. The minutes were due later Wednesday and could give investors more information about the Fed’s thinking on future rate decisions.
A more hawkish message from the Fed could put further pressure on Bitcoin and other risky assets. Rachael Lucas, an analyst at BTC Markets, said a hawkish reading could push Treasury yields and the US dollar higher, which could hurt risk assets.
Bitcoin $83,000 support
Bitcoin’s latest fall comes after the cryptocurrency had recovered from its summer lows. However, it remains well below its record peak of around $126,000 reached about a year ago, Bloomberg reported.
Crypto trading could remain unstable for the rest of the week if there is no major new market catalyst. Pratik Kala, a portfolio manager at Apollo Crypto, said Bitcoin could revisit the $78,000 level if it falls below $83,000.
The $83,000 level is now important for Bitcoin traders to watch. Kala said a fall below that level could open the way toward the $78,000 region, which he expects could provide some support.
For now, the Bitcoin decline is being driven by a mix of forced crypto liquidations and wider concerns about global risk. The $550 million liquidation wave, higher oil prices, rising US bond yields and uncertainty over the Fed are all adding pressure to the market.