In short
- Bitcoin’s rally following soft CPI data quickly reversed, leading to more than $500 million in liquidations from leveraged long positions.
- The sell-off was driven by derivatives traders taking profits, unlike previous moves led by spot sellers, based on on-chain data.
- The Bank of Japan’s first rate hike in 30 years threatens the carry trade in the yen, a key source of liquidity in the global market.
Bitcoin again after Thursday’s soft inflation report signaled a recovery, leading to more than $500 million in crypto liquidations.
With headline and core inflation at 2.7% and 2.6% respectively, below forecasts of 3%, the outlook for the crypto market seemed optimistic. Bitcoin even came close to a revision above $90,000, but the sellers stepped back up and reversed the gains within a few hours.
According to CoinGlass data, the crypto market saw $575 million in liquidations in the last 24 hours, of which $368 million were long positions. Bitcoin accounted for $202 million of liquidated positions, while $119 million of longs were liquidated.
Unlike Wednesday’s Whipsaw, where spot investors drove the price down, the recent turnaround was also driven by profit-taking by derivatives investors, Velo data shows.
Despite the excesses, the $85,000 to $81,000 range has been a good source of demand. According to CoinGecko data, Bitcoin is up almost 1% over the past 24 hours and is currently trading around $88,100.
Traders on the prediction market Myriad, owned by DeclutterParent company Dastan remains bullish, giving a 61% chance on Bitcoin’s next move, taking it to $100,000 instead of $69,000.
Pressure on the yen adds to trading
The Bank of Japan raised its interest rate by a quarter of a percentage point on Friday, ending a 30-year low interest rate regime and likely to increase pressure on cryptocurrencies and other risky assets, an earlier survey showed. Declutter report.
The historic decision puts pressure on the carry trade, which has been going on for decades. As a result, the subsequent unwinding of the carry trade after the rate hike will end the liquidity that has lubricated risky assets for years.
Regardless of the catalyst, leverage in the crypto ecosystem remains high. As a result, there have been four days in December where total crypto market liquidations have exceeded $500 million.
A closer look at the liquidation data shows that bullish investors’ long positions have made a significant contribution to the total liquidations, according to Coinalyze.
With the holidays quickly approaching, volatility is likely to increase as liquidity shrinks and investors rebalance their portfolios.
Reduced demand on the spot market and defensive positioning among futures and options traders will only reinforce these conditions.
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