Bitcoin falls below $30,000, leading markets to over $1 billion in liquidations

Bitcoin tumbles to its lowest price since July 2021 as tighter monetary policy continues to impact risk-on assets. Bitcoin and ether lost pivotal support level leading to massive losses for long futures traders.

Bitcoin fell to $29,731 on Tuesday, its lowest level since July 2021, after dropping nearly 12% last week, its worst weekly loss since January.

Such price action led to this year’s biggest liquidations losses so far. Data shows traders of bitcoin futures lost $346 million, ether futures lost $321 million, while LUNA futures $87 million – a higher-than-usual figure for traders of that asset.

More than $793 million of the total liquidations arose from long traders, or those betting on higher prices, which represented 74% of the futures trades. Some $257 million of that occurred on crypto exchange OKX, followed by Binance at $181 million and FTX at $102 million.

Open interest, or the amount of outstanding derivative contracts that have not been settled, fell 5.6%, implying traders closed their positions in anticipation of a further drop. As such, the crypto market lost nearly 8% of its overall capitalization in the past 24 hours.

Markets seemed to gradually recover at writing time. Bitcoin traded above $31,400, while ether regained the $2,350 level. An extended recovery would depend on how broader equity markets trade this week, however, as market observers previously pointed out.

“This isn’t the first time that we’ve reached this level, and the risk-reward ratio for picking up bitcoin here has been very good in the past year or so, but we are seeing a different macro backdrop,” Matt Dibb COO of Stack Funds, a Singapore-based crypto platform, told Reuters.

“The concern is this time is different with respect to whether we will see continued weak sentiment in traditional financial markets, which is likely given the inflation outlook and the likelihood of increased rates in the next few months or years.”

The Fed’s rate rise by 50 basis points last week was its largest in 22 years. Further 50 bps hikes are expected in both June and July, with the possibility of a fourth move in September according to CME group’s FedWatch tool.

Currently, BTC price down 50% from its all-time high in November and on-chain analysis firm Glassnode noted in a recent report that this decline “remains modest when compared to the ultimate lows of prior Bitcoin bear markets.”

A deeper dive into the on-chain data shows that the capitulation by Bitcoin holders has intensified in recent weeks as the price has continued to trend lower.

Evidence for this capitulation can be found looking at the Bitcoin exchange fee dominance, which measures what percentage of the fees on the Bitcoin network was paid to deposit BTC to an exchange.

According to Glassnode, the sudden spike in the Bitcoin exchange fee dominance to 15.2% is the second-highest level in history and “further supports the case that Bitcoin investors were seeking to de-risk, sell and/or add collateral to margin in response to market volatility.”

It remains to be seen what comes next for BTC, but it’s best to prepare for more volatility because macro global events continue to put pressure on financial markets.

“Bitcoin remains highly correlated to the broader economic conditions, which suggests the road ahead may, unfortunately, be a rocky one, at least for the time being,” Glassnode said.

The overall cryptocurrency market cap now stands at $1.467 trillion and Bitcoin’s dominance rate is 41.7%.