Flash Crashes and Washouts: A Normal Occurrence in Crypto Markets
The crypto market has experienced a $100 billion decline in less than 24 hours, causing the total market capitalization to drop from $1.82 trillion to around $1.71 trillion. However, analysts argue that these flash crashes and washouts are not abnormal but rather a regular part of the highly leveraged digital asset markets.
Understanding the Flush-Out
These 5% market flushes are considered normal for the crypto market, as open interest and funding rates had already been declining before the recent crash. The liquidation level during this correction was average and not indicative of an overheated or overleveraged market.
Liquidations and Long Positions
Over the past 24 hours, nearly $700 million in liquidations occurred, with approximately 85% of them being long positions dominated by BTC. Analysts have noted that long demand in the system is becoming frothy, leading to leverage flush-outs like this one.
Potential Impact of SEC Decisions on ETFs
Some attribute the recent crash to reports suggesting that the SEC will not approve any spot Bitcoin ETFs this week. However, industry experts remain optimistic about potential approvals by January 10, which could lead to a retreat in Bitcoin prices if rejected.
Stabilizing Crypto Markets
As of now, the crypto markets have mostly stabilized, with BTC trading at $43,197 and ETH at $2,291.
Hot Take: Volatility as a Norm in Crypto Markets
The recent flash crash and washout in the crypto markets may seem concerning to some, but analysts argue that these events are actually normal and necessary for the market’s health. With leveraged positions and funding rates already declining before the crash, this correction was considered average. Despite potential regulatory concerns, experts believe that the crypto markets will continue to stabilize and potentially see further growth in the near future.
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