Dogecoin, Terra Fall Steepest Among Major Cryptos as Long Traders Lose $280M

Declining sentiment for cryptocurrencies stemming from a poor economic outlook in broader markets led to a market-wide decline on Tuesday that caused hundreds of millions of dollars in losses for traders betting on higher prices, data shows.

Bitcoin (BTC) lost support at the pivotal $40,000 level on Tuesday evening, dropping to as low as $38,121 on Wednesday morning before a nominal increase during Asian trading hours. Ether (ETH) fell below $3,000 to as low as $2,781.

A fall in bitcoin and ether led to steep declines in other major assets. In the past 24 hours, dogecoin (DOGE) fell 10% after a two-day rally, while Terra’s LUNA dropped 7.2%. BNB Chain’s BNB and Solana’s SOL emerged as outperformers, falling just 2% as other assets fell at least 4%.

Some $281 million worth of “longs” were lost to liquidations on crypto-tracked futures, representing 81% of all futures trades in the past 24 hours. Liquidations in the crypto market happen when a trader has insufficient funds to fund a margin call – or a call for extra collateral demanded by the exchange to keep the trading position funded.

Overall, liquidations in the crypto market exceeded $350 million, the third-largest level in April. Over $128 million of that came from bitcoin-tracked futures, while $92 million arose from ether futures. Futures tracking dogecoin lost $24 million, which was similar to Tuesday’s loss.

The market-wide decline in cryptocurrencies on Tuesday arose amid falling optimism in the broader financial markets.

China continued to battle coronavirus outbreaks, leading to a fall in Asian markets, while the U.S. Federal Reserve inched closer to a key meeting next week, one that is expected to bring forth a big interest rate hike to tighten monetary policy in the country.

Russian troubles roiled equities in Europe. Reports suggest the country may cut gas supplies to the region, which may choke growth and stifle local economies. Russia has already cut off supply to Poland and Bulgaria, leading to a surge in European gas prices.

Sentiment, however, seemed to stabilize on Wednesday. Equities indexes in Europe were up since the open, with Stoxx 600 and Germany’s DAX rising 0.29%. S&P 500 and Nasdaq futures rose 1%, and the Shanghai Composite gained 2.5% as China vowed more infrastructure projects to bolster the local economy.

A relief in Asian and European markets saw bitcoin slightly recover, adding $500 since Asian morning hours on Wednesday. But failing to regain the $40,000 level could prove bearish for bitcoin, according to some analysts.

“Bitcoin has abruptly fallen below a critical support line, a bearish signal,” Alex Kuptsikevich, senior financial analyst at FxPro, wrote in an email to CoinDesk. “At the same time, the uptrend breakdown failed to be confirmed by buying near previous local lows.”

Kuptsikevich, however, noted institutional investors withdrew considerably less capital from crypto exchanges compared with the previous week, citing CoinShares data. “The net outflow of funds last week was $7.2 million, although it was down from the previous two weeks when investors withdrew more than $231 million,” he said.