Due to escalating geopolitical uncertainties, the risk aversion sentiment in traditional markets has spread to digital assets, causing a sharp decline in the cryptocurrency market on Friday.
Tensions between Iran and Israel have further escalated. According to The Wall Street Journal, the United States has dispatched warships to protect Israel and US forces from potential direct attacks by Iran on Israel. Iran has threatened to retaliate against Israel for its attack in Syria last week. US President Joe Biden told reporters that he expects Iran to attack Israel “sooner or later”.
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% on 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 dropped 6.21% to $246.68, and MicroStrategy’s MSTR dropped 4.86% to $1,476.
Bitcoin surged above $71,000 during Friday’s morning session, but plummeted to below $66,000 after noon, hitting a low of $65,230 intra-day, with a price fluctuation of over 8%. As of writing, Bitcoin has rebounded above $67,000, narrowing its 24-hour loss to 5%.
The second-largest cryptocurrency by market capitalization, Ethereum (ETH), fell by 12% to $3,100 in the short term, and then slightly rebounded above $3,200, narrowing the decline to 8%.
Altcoins suffered a significant decline in the market, 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 shrank to $2.42 trillion, with a 24-hour decline of over 7%.
This volatility triggered the largest-scale leveraged liquidation in a month. According to data from cryptocurrency liquidation tracker CoinGlass, approximately 277,000 cryptocurrency traders were liquidated by the end of the US stock market closing, with a total loss of nearly $1 billion. The amount of liquidation in the past 24 hours was $878 million, of which the long positions were $785 million and the short positions were $93.41 million.
The overall market capitalization 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) surged, while gold, traditionally seen as a safe-haven asset, surged to over $2,400 before giving up gains, reaching a new all-time high, and oil rose by 1%.
Jose Torres, Senior Economist at Interactive Brokers, told Bloomberg that the latest developments indicate that investor sentiment and high-risk assets are easily influenced by geopolitical conflicts, persistent inflation, and oil prices. He pointed out, “Investors have delayed their expectations for the start of the Fed’s easing cycle, and geopolitics 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 significantly increased, reversing the previous week’s downward trend. Adam McCarthy, an analyst at Kaiko Research, 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 increase in expectations for short-term volatility.
McCarthy said, “In this situation, traders may be more pessimistic because of their uncertainty, but they are willing to pay more for options to avoid the impact of price fluctuations. They may pay high premiums to purchase downside protection.”
Ryze Labs (formerly Sino Global Capital), a digital asset investment company, stated in its commentary on Friday that it expects “short-term market weakness” in crypto assets due to the upcoming US tax season.
Another Kaiko report showed that previous halvings had mixed short-term effects but bullish long-term effects. The report explained that in the previous three halvings, the price surged after one month and three months. In all three halvings, the price surged after nine months and twelve months.
However, Kaiko emphasized that the sample size of the three halvings may not be sufficient to draw conclusions, and it is important to pay attention to other events in the industry.
Glassnode’s analysis report stated that compared to historical cycles, the current market is still in the relatively early stage of price discovery. Historical data shows that during previous frenzy phases, Bitcoin prices have experienced multiple retracements of over 10%, with most retracements being larger and declines of over 25% being very common. In this cycle, since Bitcoin broke its all-time high, the market has only experienced two adjustments of around 10%.
Author: BitpushNews Mary Liu