Due to escalating geopolitical uncertainties, the risk aversion sentiment in traditional markets has spread to digital assets, causing a sharp drop in the crypto market on Friday.
The tension between Iran and Israel has further escalated. According to The Wall Street Journal on Friday, the United States has deployed warships to protect Israel and US troops from potential direct attacks by Iran on Israel. Iran has threatened to retaliate against Israel’s attack in Syria last week. US President Joe Biden told reporters that he expects Iran to eventually attack Israel.
The “fear index” of Wall Street, the Chicago Board Options Exchange (Cboe) Volatility Index (VIX), soared to its highest level since October last year.
The US stock market experienced its worst day since January. The three major indices all fell more than 1% that day, with the Dow Jones Industrial Average down 1.24%, the Nasdaq Composite Index down 1.6%, and the S&P 500 Index down 1.45%. Coinbase’s COIN fell 6.21% to $246.68, while MicroStrategy’s MSTR fell 4.86% to $1,476.
Bitcoin surged to $71,000 during Friday’s morning session, but plummeted below $66,000 after noon, hitting an intraday low of $65,230, with a price fluctuation of over 8%. As of the time of writing, Bitcoin has rebounded above $67,000, narrowing its 24-hour decline to 5%.
The second-largest cryptocurrency by market capitalization, ETH, fell by 12% to $3,100 in the short term, and then rebounded slightly above $3,200, narrowing the decline to 8%. Altcoins in the market also suffered heavy losses, with ADA of Cardano, AVAX of Avalanche, Bitcoin Cash (BCH), Filecoin (FIL), and Aptos (APT) all plummeting by 15-20%. The total market capitalization of cryptocurrencies has shrunk to $2.42 trillion, with a 24-hour decline of over 7%.
This volatility has triggered the largest-scale leveraged liquidation in a month. According to data from the cryptocurrency liquidation tracker CoinGlass, approximately 277,000 cryptocurrency traders were liquidated as of the end of the US stock market session, with a total loss of nearly $1 billion. The liquidation amount in the past 24 hours was $878 million, with long positions accounting for $785 million and short positions accounting for $93.41 million.
The overall market value of cryptocurrencies is currently $2.43 trillion, with a 24-hour decline of 7.3%, and Bitcoin’s dominance rate is 54.3%.
Due to hedging by traders, US Treasury bonds and the US Dollar Index (DXY) soared, and gold, which has long been considered a safe-haven asset, rose to over $2,400 before giving up its gains, hitting a new all-time high, while oil rose by 1%.
Jose Torres, a senior economist at Interactive Brokers, told Bloomberg that the latest developments indicate that investor sentiment and high-risk assets are easily affected by geopolitical conflicts, ongoing inflation, and oil prices. He pointed out, “Investors have postponed expectations for the start of the Fed’s easing cycle, and geopolitical issues may replace the Fed as one of the biggest factors affecting market volatility.”
The implied volatility of Bitcoin options is rising. Kaiko Research stated in a report that the implied volatility of Bitcoin options has risen significantly, reversing the previous week’s downward trend. Kaiko research analyst Adam McCarthy said that a price increase usually indicates a lack of confidence in the direction of the price by market participants. When implied volatility rises, traders are usually willing to pay more to protect existing positions or speculate on potential price changes (up or down).
Kaiko stated that the implied volatility of futures contracts expiring in the next two weeks has increased the most, rising from 59% to 71% in just 2 days, indicating an increasing expectation of short-term volatility.
McCarthy said, “In this situation, traders may be more pessimistic because they are uncertain but willing to pay more for options to avoid the impact of price fluctuations. They may be willing to pay high premiums to buy downside protection.”
Ryze Labs, a digital asset investment company (formerly known as Sino Global Capital), commented on Friday that due to the upcoming US tax season, a “short-term market weakness” is expected in crypto assets.
Another Kaiko report showed that previous halvings had mixed short-term impacts but bullish long-term impacts. The report explained that in the previous three halvings, the price surged one month and three months later. In all three halvings, the price surged nine months and twelve months later.
However, Kaiko emphasized that the three sample sizes may not be sufficient to draw conclusions, and it believes it is important to pay attention to other events in the industry.
Glassnode: Based on historical cycles, BTC could still experience a larger pullback. Glassnode stated in its analysis report that compared to historical cycles, the current market is still in the relatively early stage of price discovery. Historical data shows that during previous hype phases, Bitcoin prices have experienced multiple pullbacks of over 10%, with most of them being larger, and pullbacks of over 25% are quite common. In this current cycle, since Bitcoin broke its all-time high, the market has only experienced two adjustments of around 10%.
Author: Mary Liu from Bitpush News.
Tags: 2023 Market, Aptos, Avalanche, Cardano, Coinglass, Filecoin, MicroStrategy, Ethereum, Halving, Altcoins, Bitcoin, Bitcoin Cash, Liquidation, Bull Market, Federal Reserve, Market Trend, Risk Assets, Gold.