Last week saw crypto suffer its worst 24 hours since FTX, with over one billion dollars in derivatives liquidated. This significant drop in price was led by Bitcoin, which shed 7%, its largest one-day drop since the FTX collapse last November.
The year 2023 has been characterized by a slow and steady rise in crypto, aside from a jump in March amid the regional bank crisis. The Bitcoin price chart displays this clearly, as well as Friday’s trip south.
Data from Coinglass shows that the drop was caused by a surge of liquidations, resulting in the biggest day of liquidations since the FTX demise. This highlights the much greater volume in derivatives markets than spot, with the latter remaining extremely thin.
The underlying cause of the volatility was a sell-off in the bond market, with yields spiking to multi-year highs. Investors are betting that high interest rates will persist for longer than previously anticipated, or further hikes may not be as improbable as expected. The inverse relationship between Bitcoin and yields has been strong, demonstrated in the chart below.
The sell-off reaffirms how vulnerable Bitcoin is to the highly unusual macro climate. Funding rates also dropped below -0.01% for the first time since March, and negative funding rates and freefaling open interest returned, marking the return of volatility.
What this spells for the future of crypto is uncertain. Some analysts affirm this is a mere blip, while others fear there could be a return to 2022-like conditions. Bitcoin is particularly sensitive to global liquidity, meaning a reversion towards the tightening seen last year could lead to red candles on price charts.
The macro climate remains largely unprecedented and difficult to predict. Even the Federal Reserve’s language betrays this, with some notable see-sawing in recent meetings. Bitcoin is again caught in the crossfire, a risk asset subject to the wider market as it grapples with this fast-changing environment.
