Market experts identify the triggers of the latest Bitcoin and crypto liquidation event, with questions of manipulation emerging.
The cryptocurrency market recently experienced its largest liquidation since September 2021, as Bitcoin saw a sharp 10% flash crash. Within just 12 hours, BTC plunged from $103,647 to $92,092, only to recover swiftly.
Despite the rebound, the event triggered a cascading effect that impacted the broader market, leading to severe losses for altcoins and wiping out over $1.7 billion from nearly 584,000 traders within 24 hours.
While sudden crashes in crypto markets are not unusual, this specific event raised questions due to certain peculiar characteristics.
Pseudonymous Croatian analyst Ltrd highlighted anomalies, pointing out that traders on Coinbase began selling aggressively about an hour before the crash began. This pre-dump activity created selling pressure, which drove prices into zones where overleveraged positions were forced to liquidate.
Market Conditions Leading to the Crash
According to Ltrd, two important indicators pointed to an overheated market: spiking funding fees and a sharp increase in open interest. These metrics revealed that traders were heavily leveraged, setting the stage for a massive sell-off once a breach on price thresholds occurred.
The liquidation cascade that followed acted as a domino effect, with stop-losses and liquidations bolstering the crash’s intensity. For perpetual swaps exchanges, this chain reaction made the final price drop even more substantial, especially within minutes.
Anomalies Observed
Interestingly, certain cryptocurrencies behaved unusually during the crash. For instance, Ethereum (ETH) showed strong buying pressure after the dip, indicating potential accumulation by large players.
Conversely, XRP experienced a severe sell-off due to its relatively low liquidity, despite its large market cap. XRP’s thin trading volume usually makes it prone to both sharp gains and losses. Notably, XRP crashed 18% from $2.4 to $1.96 in less than four hours.
In addition, unexpected volume spikes were noted in assets like Cardano (ADA), USDC, and FDUSD during the crash. These irregularities have triggered concerns about market manipulation, especially concerning the pre-crash activity on Coinbase.
Manipulation or Coincidence?
The timing of the aggressive sell-off on Coinbase has led some traders to speculate about possible manipulation.
One Bitcoin trader alleged that centralized exchanges (CEXs) might have engaged in “liquidation hunting,” where platforms intentionally trigger stop losses to profit from the ensuing chaos. The trader called on Coinbase to disclose its main trading wallet addresses and clarify its role.
However, not all agree with this. Another proponent pointed out that Coinbase itself suffered from the crash, as its stock price dropped nearly 10%, suggesting that the sell-off might have been from platform traders rather than the exchange itself.
Speaking at the event, analyst Ash Crypto echoed Ltrd’s commentary. However, he noted that large-scale liquidations have a cleansing effect on the market. According to him, it forces weak hands out of the market, creating opportunities for “smart money” to buy at discounted prices.
THE BIGGEST LIQUIDATION SINCE 2021!
WHY DOES THE MARKET DUMP AND WIPE ALMOST $2 BILLION TRADES IN JUST 24 HOURS?
HERE'S WHAT HAPPENED:
1. COINBASE TRADERS STARTED THE SELL-OFF.
COINBASE TRADERS BEGAN SELLING 1 HOUR BEFORE THE MAJOR DUMP. THE SELL PRESSURE PUSHED THE… pic.twitter.com/upknm2uftF
— Ash Crypto (@Ashcryptoreal) December 10, 2024
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