Bitcoin’s recent price volatility has led to a surge in liquidations in the perpetual futures markets. According to the latest Bitfinex Alpha report, there has been a significant increase in intraday volatility, resulting in the liquidation of long positions as the market moved lower.
One striking example of this trend occurred last Monday, when volatile trading led to the liquidation of over $44 million in bitcoin futures positions. This highlights the potential vulnerability of leveraged long positions in the current market environment, where volatility is being amplified by exceptionally low spot volumes.
Bitfinex analysts noted that the lack of buying support in the spot market has made it difficult for leveraged long positions to drive the price higher. This situation creates a vulnerable state for these positions, making them more susceptible to being liquidated or “squeezed out” during market volatility.
The decline in bitcoin’s price over the past week is evidence of this trend. The price fell 3.5% to $26,236 at 8:00 a.m. ET, highlighting the challenging market conditions.
One factor contributing to this scenario is the declining appetite for risk assets among investors. Throughout September, the cryptocurrency market has experienced low spot volumes, primarily due to macroeconomic factors diminishing investor interest in riskier investments.
Ruslan Lienkha, Chief of Markets at YouHoldler, explained that investors have been showing a preference for fixed-income investments instead. He added that without an immediate macroeconomic catalyst, it is unlikely that the situation will improve in the near future.
The capital outflow from the cryptocurrency market is evident in various on-chain metrics. Lienkha highlighted the decline in the bitcoin price chart as well as the total stablecoin market cap chart, indicating an outflow of capital from the market.
This trend is further supported by a recent CCData report, which revealed a decline in the market capitalization of stablecoins to its lowest level since August 2021. Additionally, stablecoin dominance within the overall cryptocurrency marketcap also decreased by 0.2% in mid-September.
Overall, the combination of increased intraday volatility, significant liquidations in the perpetual futures markets, and declining appetite for risk assets has created a challenging environment for the cryptocurrency market. The lack of spot market buying support has left leveraged long positions vulnerable to liquidations during periods of market volatility. Investors are opting for safer investments, leading to capital outflows from the crypto market. Only time will tell how these factors will continue to impact the market and whether a turnaround is on the horizon.
