The crypto market tanked over the weekend, losing over 300 billion USD in market capitalization, dropping to $1.9 trillion USD.
Bitcoin dropped below $70k AUD, and most altcoins also dropped in value. ETH was down -11%, falling to $2,900 AUD. Ripple’s XRP, which made significant gains over the last week, fell by -12%, while Binance’s BNB coin dropped by -10%.
China Mining Blackouts
At first, the reason behind the crash was attributed to massive blackouts in Northwest China, specifically, in the Xinjiang region, which affected the hash rate of several BTC mining pools. The hashrate dropped nearly 50%.
Some others blamed the circulating rumours about the US Treasury charging financial institutions with money laundering, but there is no evidence to back this claim.
High Leveraged Liquidations
According to analyst Adam Cochran, the reason behind the crash can be attributed to a set of conditions that include ignorance of market-making combined with massive leveraged trading across exchanges like Binance.
The rumours, the power outage, combined with margin accounts trading with 100 – 150x leverage on several exchanges could have made the perfect receipt for disaster.
Binance Futures markets tanked the hardest. Exchanges with high leverages remained at lower prices, while Coinbase and other exchanges remained at average levels during the crash.
Margin accounts on Binance were building big positions using leverage up to 150x, but as price dips below certain points, some of these accounts were below maintenance limits, which liquidates them.
When traders are liquidated, crypto is exchanged for Tether, which makes the crypto drop in price. Currently, the volume/market cap for Tether is 4.62, and Tether went up 1.05 USD after the crash.
This triggers other accounts to sell their positions, creating a toxic cycle that ends in the liquidation of most retailers. Over 1 million positions were liquidated, while the largest liquidation was $68 million on Binance.
Despite the sudden crash, the market is slowly recovering. Several cryptos rebounded quickly. Ethereum is now trading at $2,150 while Bitcoin managed to recover above $56k, after falling nearly $10k in price.
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