Sellers returned in full force on Thursday, sending both stocks and cryptos lower. The risk-off tone among market participants has been a dominant theme this year despite short-term price swings.
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And in the futures market, a large amount of open interest was added to the market during Wednesday's rally. During Thursday's sell-off, almost all of that open interest was closed out, according to Glassnode, a crypto data provider.
●Bitcoin (BTC): $36,260, −8.86%
●Ether (ETH): $2,726, −7.60%
●S&P 500 daily close: $4,148, −3.55%
●Gold: $1,880 per troy ounce, +0.69%
●Ten-year Treasury yield daily close: 3.07%
Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.
The chart below shows the spike in long BTC liquidations over the past 24 hours, which reached the highest level since April 10.
Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading, which only tracks asset prices, as opposed to spot trading, where traders own the actual assets.
Selling intensified later during the New York trading day, which pushed bitcoin below $36,000. That triggered an uptick in long liquidations. From a technical perspective, the sharp price drop rejected support at $37,500, which was the lower end of a three-month price range.
Over the past month, option traders were actively hedging against further price drops and purchasing front-month volatility contracts. That contributed to a bearish tone among market participants, which preceded the current sell-off.
Supply meets demand?
On the flip side, it appears that selling pressure was met with renewed buying interest from the Luna Foundation Guard (LFG).
On Thursday, the foundation reported that it has acquired $1.5 billion in bitcoin to bolster the reserves of its Terra (LUNA) stablecoin. The purchase was conducted using over-the-counter swaps, which included one billion TerraUSD (UST) for $1 billion worth of BTC. Afterward, the foundation purchased an additional $500 million worth of BTC.
The newly acquired BTC brings the LFG’s total holdings to about 80,394 bitcoins, worth just shy of $3 billion. LFG aims to have accumulated a total of $10 billion in stablecoin reserves before the end of the third quarter.
"From the flows side, we are also watching progress on the Mt. Gox settlement to see when bitcoin payments totaling about $7 billion-$8 billion could potentially arrive in the market, which could be as early as the second half of 2022 or delayed until 2023," David Duong, head of institutional research at Coinbase, wrote in a report earlier this week.
"This could potentially be offset by purchases of bitcoin (or other tokens) to shore up stablecoin reserves, comparable to the LFG flows we saw in March and early April," Duong wrote.
Theoretically, persistent buying from LFG and others could absorb recent selling among traders.
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- Luna Foundation Guard Acquires $1.5B in Bitcoin to Reinforce Stablecoin Reserves: The purchase brings LFG's holdings to more than 80,000 bitcoins, or nearly $3 billion.
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- Elizabeth Warren Echoes Labor Dept. Concerns About Fidelity’s Plan for Bitcoin in 401(k) Retirement Plans: In a joint letter with Sen. Tina Smith, Warren asked Fidelity "about the appropriateness" of its plans.
Most digital assets in the CoinDesk 20 ended the day lower.
Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.
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