U.Today – The second-largest liquidation event in the history of the cryptocurrency market is here. Nearly $700 million worth of long orders were destroyed overnight after crashing below $55,000. Sadly, we won’t see a recovery as fast as in the past.
A cascading effect is observed in the cryptocurrency market due to large liquidations. When large positions are liquidated, it not only further reduces the price, but also incites panic among investors.
The fall may be exacerbated by these panic selling, which would lead to further liquidations and a steeper drop in prices. This also applies to the current market, with dire consequences. Considerable selling pressure has been applied to the market as a result of the transfer of funds from the now defunct Mt. Gox exchange.
The movement and potential selling of these funds raises the total amount of Bitcoin available for purchase, driving prices down. Another significant factor has been the recent selling pressure from ETFs. In contrast, exchange-traded funds (ETFs) have emerged as a major source of selling pressure, despite having accumulated BTC prior to the sell-off.
The market price of Bitcoin is negatively impacted when these funds sell substantial amounts of the cryptocurrency. Governments in the US and Germany have been liquidating their cryptocurrency holdings. The market’s problems are exacerbated by this government liquidation, which increases supply and drives down prices.
The huge sales volume we are currently seeing exceeds the market's liquidity capacity. Due to the lack of liquidity, even modest sales volumes can have a significant effect on the price.
Recovery will be a difficult road. A quick recovery is unlikely due to large liquidations, massive sell-offs from institutional and government sources, and overall negative market sentiment. Preparing for a medium-term bear market could be a wise decision in this case.
This article was originally published on U.Today
