The cryptocurrency market experienced a sudden crash, losing over $430 billion in capitalization within 48 hours due to escalating geopolitical tensions between Iran and Israel.
Traders suffered over $2 billion in liquidations, with Bitcoin (BTC) losing close to half a billion dollars, as investors scrambled to exit their positions.
Advertisement
The market downturn began before the Iranian offensive against Israel gained widespread media coverage, hinting at a broader fear-driven sell-off.
Fingers crossed that Iran-Israel may de-escalate here. Iran fired their 300+ drones and rockets, early reports are that 99% were shot down, minimal damage. That may be ideal scenario for Iran to check the box on retaliation, without Israel needing to retaliate for fresh damage.
— Ari Paul ⛓️ (@AriDavidPaul) April 14, 2024
At the time of this report, the total crypto market cap had dropped by 17%, leaving it at $2.258 trillion – partially recovered from the crash to $2.098 trillion.
This marked a continuation of historical trends where geopolitical tensions have led to significant losses in risky assets like Bitcoin and stocks.
Massive liquidations within 24 hours
Nearly 300,000 traders were hit by liquidations, resulting in a total loss of approximately $1 billion in the last 24 hours.
The largest single liquidation order was on the OKX ETH-USD-SWAP pair for $7.19 million.
The majority of these investments were made during an era of market confidence, with numerous placements being based on anticipated rises in the derivatives sector.
Bitcoin (BTC), the largest cryptocurrency by market cap, saw its price drop significantly after falling below $66,000, testing the $60,000 mark.
Ethereum (ETH), meanwhile, dropped more than 5% in a day to trade at around $3,215.
With a market cap ranking of fifth, Solana underwent a 12% price decrease, and Dogecoin, which was showing signs of growth, experienced a loss of no less than 5%.
Safe-haven assets such as gold and oil saw gains during the market sell-off, with gold briefly reaching a new all-time high above $2,400.
Meanwhile, Treasury bonds and the US dollar index gained as investors sought shelter in traditional safe-havens.
Gold-backed cryptocurrencies like Pax Gold (PAXG) saw significant premiums over gold indexes during the market downturn.
The total crypto market cap now stands at $2.384 trillion, a decrease of $142 billion from its value on April 12.
However, it’s important to note that despite the significant losses, altcoins still represent a smaller portion of the overall market compared to Bitcoin and Ethereum.
Understanding Liquidations
Cryptocurrency derivatives traders initiate long or short contracts, providing collateral and establishing a predefined price for asset liquidation.
Should the price of the cryptocurrency meet the specified amount, the exchange concludes the contract and converts the pledged security into cash to cover any deficits.
There are inherent dangers involved in engaging in derivatives trading, specifically with futures contracts.
Investing in cryptocurrencies through buying them in the spot market can help investors avoid liquidations and is generally considered a more conservative approach.
A Brief Look at Potential Risk Factors
The cycle of Bitcoin halving has shown that a cryptocurrency market crash could occur around one year after the halving event, making it a significant risk factor.
Other geopolitical tensions or events, such as regulatory actions in countries like China and Russia, could also trigger sell-offs in the crypto market.
US interest rate hikes have the potential to further dampen investor sentiment, potentially leading to a larger cryptocurrency market correction.
The emergence of new variants of the COVID-19 virus could cause another wave of panic selling and uncertainty in the financial markets.
Graham Summers’ book “The Everything Bubble” warns of a potential global financial system reset, which could impact all assets including cryptocurrencies.
The growing use of leverage in the crypto market, which can amplify both gains and losses, poses a considerable risk for investors.
Cryptocurrencies face uncertainty in EU countries due to lack of regulation.
Advertisement
