Bitcoin, the king of all cryptocurrencies, embarked on a roller-coaster ride on Wednesday, dropping 7% from its lofty peak of $64,000. The rapid rally earlier in the day, which pushed Bitcoin above the $60,000 mark for the first time since November 2021, was followed by a sharp drop to $59,400, leaving traders in a turbulent market scenario.
The Rise: Factors Driving Bitcoin’s Rise
Bitcoin’s remarkable rise, reaching levels not seen in over two years, has been fueled by a confluence of factors.
A staggering 42% price increase in February, marking the largest monthly increase since December 2020, contributed to Bitcoin’s surge on Wednesday. In particular, the approval of spot Bitcoin ETFs in the US has played a critical role in attracting capital inflows into the market. ETFs from Grayscale, Fidelity and BlackRock have seen an increase in trading volumes, signaling growing interest in cryptocurrencies as a formidable asset class.
Bitcoin’s upcoming April halving followed by the post-halving correction as well as the US Fed’s expected rate cuts in the coming months have collectively contributed to Bitcoin’s surge skyrocketing to $64,000!
The Fall – Factors Behind Bitcoin’s 7% Plunge
However, the euphoria was short-lived as Bitcoin faced an unexpected 7% drop caused by multiple factors. A staggering $700 million in losses across all digital assets in the past 24 hours underlined the bloodbath for leveraged traders.
The market turmoil has extended beyond the immediate sphere of Bitcoin, affecting various digital assets. The CoinDesk 20 Index, which represents broader market sentiment, fell nearly 5% after hitting an all-time high of 2,260 earlier in the day. This is followed by major cryptocurrencies such as ETH, Solana’s SOL, XRP, Cardano’s ADA, DOGE and Avalanche’s AVAX, plummeting 4%-9% in an hour.
A significant contributor to the fire sale was the culmination of $700 million in liquidations of all digital assets within 24 hours.
Leveraged derivatives trading positions faced closure due to this massive liquidation, which impacted both long and short positions. The scale of liquidations witnessed on this day was comparable to the great destruction of August, when Bitcoin’s sudden drop to $25,000 liquidated $1 billion in derivatives positions across the cryptocurrency landscape.
This wild price action also set records for trading volumes in US-listed spot Bitcoin ETFs. BlackRock’s IBIT alone saw a staggering $3.3 billion in shares traded, more than double the previous day’s record figures. Overall, spot ETFs saw nearly $8 billion in trading volume, underscoring the increased volatility and investor activity during this period.
