A significant downturn in the cryptocurrency market has been attributed to high levels of leveraged long liquidations, particularly concerning bitcoin’s notable equity sensitivity, as highlighted by Citigroup. The financial institution pointed to escalating U.S.-China trade tensions as a trigger for a dramatic selloff in futures markets on Friday, which subsequently reverberated throughout the cryptocurrency sector. This event showcases the inherent volatility of crypto assets and their correlation with traditional equity markets.
On that day, the cryptocurrency market suffered a severe flash crash, wiping out over $500 billion in overall value and leading to nearly $20 billion in liquidations across various derivatives platforms. Bitcoin’s price plummeted by as much as 13% within a single hour, reaching a low of approximately $102,000 before experiencing a partial recovery. At the time of this report, bitcoin was trading close to $111,700.
Despite the turmoil, Citigroup noted that exchange-traded fund (ETF) inflows showed resilience. This trend is likely driven by newer investors who are less reliant on leverage. The bank remains optimistic, forecasting that the recent liquidations will not significantly dampen demand for bitcoin. According to its projections, bitcoin and ether are holding relatively steady, similar to levels seen in September. Citigroup maintains its 12-month price target for bitcoin at $181,000 and $5,400 for ether, with year-end projections of $133,000 and $4,500, respectively.
Citi attributes sustained ETF flows as a crucial support factor for its base case, while potential weakness in the equity market could pose risks to its bullish outlook. In related news, a crypto asset manager, Bitwise, has suggested that Bitcoin ETF inflows are on track to set new records in the fourth quarter, indicating continued interest and investment in the cryptocurrency space.
