Bitcoin Crash: $2.6B Wipeout Signals Negative Funding

What to Know:

• Bitcoin experienced a sharp correction, falling from $77,000 to $60,000 in a single day, triggering widespread liquidations across the crypto market.
• Analysts attribute the crash to structural issues that began in October, including diminished market depth and a shift in market sentiment.
• The restoration of structural liquidity, achieved through price and leverage capitulation combined with maximum bearish sentiment, will likely signal a market bottom, potentially impacting XRP and broader altcoin recovery.

The cryptocurrency market has been reeling from a significant downturn, highlighted by Bitcoin’s precipitous drop. The market’s structure and sentiment have been tested, leaving investors wary. While the causes are multifaceted, analysts point to underlying structural issues that have been brewing for months.

Sudden Market Plunge

In a dramatic 24-hour period, Bitcoin plummeted from $77,000 to $60,000, marking one of its worst single-day performances. This sharp decline triggered substantial losses across the altcoin market, with some, like XRP, experiencing drops of up to 20%. Data from Coinglass indicates that liquidations reached $2.6 billion, affecting nearly 600,000 traders.

Structural Weakness

Analysts at the Kobeissi Letter suggest that the roots of this crash can be traced back to an event in October when $19 billion in leveraged positions were wiped out. They argue that this event triggered a structural shift in the market, leading to a prolonged period of instability. Even during periods of range-bound trading, brief liquidation events and gaps in both directions signaled underlying fragility.

Sentiment Shift

The Kobeissi Letter analysts emphasize the importance of market sentiment in crypto cycles, noting that it was significantly damaged after the October crash. This deterioration in sentiment has created a negative feedback loop, exacerbating liquidations and further undermining market confidence. The analysts estimate that since January 24th, $10 billion worth of leveraged positions have been liquidated, representing a substantial portion of the record amount seen in October.

Market Depth Concerns

Further evidence of structural issues can be seen in Bitcoin’s market depth, which remains more than 30% below its October peak. This metric reflects the capital available to absorb large orders without significantly impacting the price. The last time market depth was this low was following the FTX crash in 2022, indicating the severity of the current situation.

Institutional Impact

The rapid and substantial correction suggests that a large player, possibly an institutional investor, either sold off a significant position or faced liquidation during the turbulent trading session. The analysts highlighted the constant selling pressure and rapid price drops, with Bitcoin falling by thousands of dollars in mere minutes.

Identifying the Bottom

The analysts believe that Bitcoin will find a bottom once structural liquidity is restored. This restoration will require a combination of price and leverage capitulation, coupled with maximum bearish sentiment. While predicting the exact timing is challenging, the analysts suggest that the market is nearing this point.

The recent market downturn underscores the inherent volatility and structural complexities within the cryptocurrency space. While the path forward remains uncertain, monitoring key indicators such as market depth and sentiment, as well as the potential for institutional activity, will be crucial for navigating the evolving landscape. For XRP and other altcoins, recovery will likely depend on the broader market’s ability to reestablish a solid foundation.

Related: XRP Dumps: Negative Funding Signals Trouble

Source: Original article