Cryptocurrencies have recently seen a significant downturn, as investors increasingly turn to these digital assets as a means of liquidity to fund purchases in other markets. Analysts report that this shift is exacerbating the decline, leading to the liquidation of numerous long positions in the space. Tom Bruni, editor-in-chief and VP of community at Stocktwits, noted that opportunity cost plays a vital role in this downturn. As momentum grows in the equity market, highlighted by the S&P 500 index nearing 6,700, traders are seeing digital currencies like Ethereum and Bitcoin as less attractive for investment.
On September 22, ether, the second-largest cryptocurrency by market capitalization, saw a drop of approximately 9%, falling from around $4,450 to roughly $4,050, while Bitcoin traded downwards towards $111,500. Bruni elaborated on the phenomenon, indicating that the highs seen in 2021 pose a barrier for Ethereum and altcoins, leading to a range-bound pricing structure. He explained that traders are using crypto as a funding source while waiting for either new all-time highs or more appealing prices to entice them back into the market.
George Kailas, CEO of Prospero.ai, highlighted the unusual circumstances surrounding the crypto market’s recent sell-off, linking it to record trades across several major ETFs, including the Magnificent 7 ETF and various artificial intelligence-focused funds. He suggested that the concurrent optimistic environment in traditional markets might explain the liquidity shifts, stating, “After such an epic run-up in Crypto, we may now be seeing profit-takers rotate back into stocks.”
The substantial sell-off has been characterized by significant liquidations of leveraged positions, with reports indicating that on September 21 alone, around $1 billion worth of Bitcoin longs were liquidated in an hour. This liquidation spree reportedly contributed to a total of approximately $1.7 billion in liquidations across both long and short positions within a single day. The swift decline of ether, as noted by Kailas, was further fueled by considerable selling activity from large holders, known as “whales.” This selling trend instigated a chain reaction involving trading bots, stop-loss triggers, and retail traders, all amplifying the downward momentum.
Mike Maloney, CEO and Founder of Incyt, echoed these sentiments, asserting that the widespread liquidation in crypto markets was clearing out long-term investors and lowering prices. Despite the current drop, he expressed an optimistic short-term outlook, suggesting that once prices stabilize around $4,000, a rebound could be expected in the days ahead.
