- An estimated 4,000 bitcoin were sold on Saturday, over the course of an hour, worth approximately US$208 million.
- The wild swings in cryptocurrencies come amid a volatile period for financial markets.
Although financial markets remain closed, bitcoin tumbled on Saturday, taking down other cryptocurrencies with it, in another indication of risk-off sentiment as well as deleveraging.
According to analysis of flows from Glassnode, a blockchain data service provider, an estimated 4,000 bitcoin were sold on Saturday, over the course of an hour, worth approximately US$208 million.
Given that bitcoin’s market cap is well in excess of US$1 trillion, that amount shouldn’t have moved the needle, but it did for two main reasons.
First, weekend volumes typically tend to be lower for cryptocurrency markets even though they run 24/7, which means that even a slightly elevated sale could crash through already thin order books.
Second, the sale would have triggered cascading margin calls on the copious amounts of leverage that the cryptocurrency markets are notorious for.
Given that many derivative exchanges are unregulated, the levels of leverage on offer are well in excess of what’s available in traditional financial markets and traders use these instruments to goose profits, but when unwinding happens, which is relatively often, often see margin calls that wipe out value.
An estimated US$2 billion worth of positions were automatically liquidated over the course of an hour on Saturday, similar to what was witnessed in August and May of this year.
The wild swings in cryptocurrencies come amid a volatile period for financial markets.
Soaring inflation is forcing central banks to reconsider their otherwise accommodative policies, which lifted a wide range of assets, including cryptocurrencies.
Against this backdrop, the omicron variant is threatening to derail the economic recovery and supply chain disruptions are continuing to put upwards pressure on prices.
Nonetheless bitcoin is still up by over 60% this year, a return that far exceeds other assets and El Salvador took the opportunity to buy the dip, adding 150 coins to its coffers.
Haven assets like U.S. Treasuries soared amidst the uncertainty, but key to what happens next is whether the Fed turns rapidly hawkish and there is reason to believe this may be the case.
With a second term more or less firmly in the bag (pending Senate confirmation), U.S. Federal Reserve Chairman Jerome Powell looks set to accelerate the Fed’s taper at the central bank’s policy meeting towards the middle of this month.
As has happened before, Powell has not been one to U-turn suddenly on policy shifts, instead choosing to stick to his guns and communicating with the market in clear and comprehensible language.
Notably, Powell has dropped the term “transitory” to describe inflation and has said on numerous forums, including at a testimony before Congress, that the central bank intends to accelerate the pace of tapering its asset purchases.
Last month, the U.S. Federal Reserve cut its US$120 billion-a-month asset purchases by US$15 billion, implying that they would stop altogether by the middle of next year and paving the way for interest rate hikes to reign in inflation.
Powell has repeatedly said that the Fed won’t raise rates until asset purchases come to a halt.
Nevertheless, it’s not a given that the Fed will turn hawkish.
Friday’s U.S. jobs numbers were a mixed bag and employment levels have been stated as a key metric for Fed policy, with central bank dovishness being key to the continued success of risk assets, cryptocurrencies included.
