Crypto Markets Navigate $100 Billion Loss: A New Normal?

Market Resilience Amidst Volatility

In a recent development, the cryptocurrency market experienced a substantial decline, erasing approximately $100 billion in less than a day.

Normalcy in Market Corrections

The total value of the cryptocurrency market, previously peaking at $1.82 trillion, dropped to around $1.71 trillion. Although this decrease seems significant, it's now typical for the digital asset market to adjust by about 5%. Such fluctuations are common in a field heavily influenced by leveraged trading.

Technical Insights

A notable technical analyst, known as 'CrediBULL Crypto', observed that funding rates, crucial indicators in leveraged trading, had normalized before this downturn. These rates, essential for traders holding leveraged positions, had reduced, signalling a lesser inclination towards leveraged trades. Concurrently, the open interest in the market, representing unsettled contracts, had been on a decline.

Liquidation Levels

Regarding market liquidations linked with the recent drop, they were deemed average, not reflecting an excessively leveraged market. This adjustment is viewed as a necessary recalibration for the health of the cryptocurrency ecosystem.

Leverage Dynamics

Data from Coinglass shows that in the last 24 hours, liquidations amounted to nearly $700 million, predominantly in long positions, especially in Bitcoin (BTC).

Willy Woo, an analyst, commented on the high long demand, leading to a 'basis trade'. This strategy involves buying Bitcoin while shorting perpetual futures to capitalize on the funding rate from bullish speculators. Similar leverage flushouts have occurred previously, highlighting the inherent risks of leveraged trading.

SEC Speculations and Market Outlook

There's speculation regarding the U.S. Securities and Exchange Commission's (SEC) stance on Bitcoin exchange-traded funds (ETFs), which some believe influenced the market. Nonetheless, there's optimism for upcoming ETF approvals, with a significant deadline approaching on January 10 for the Ark 21 Shares Exchange Traded Product (ETP).

Despite these developments, fears of potential SEC rejections remain, which could push Bitcoin prices down to the $30,000 bracket.

At this report's time, the cryptocurrency markets are showing signs of steadying. Bitcoin is trading at $43,197, and Ethereum at $2,291.