The worst fears for risk assets, including cryptocurrencies, are coming true, raising the possibility that bitcoin (BTC) may fall below $74,000. This potential downturn could trigger significant liquidations of leveraged long positions in the market.
Recent discussions on CoinDesk have highlighted the looming threat of pronounced downside volatility in risk assets, stemming from the unwinding of treasury market arbitrage positions—a scenario reminiscent of the dynamics that led to the COVID-19 crash.
Observers note that the carry trades commonly executed by hedge funds, which exploit minor price discrepancies between Treasury futures and securities, are beginning to unwind. The nearly 70 basis points rise in the U.S. 10-year Treasury yield to 4.5% is a clear indication of this trend, with the 30-year yield experiencing a similar increase. Notably, yields generally move inversely to prices; as risk aversion rises, investors typically seek refuge in government bonds, leading to a decline in bond prices.
As highlighted by ForexLive’s analyst Justin Low, “It’s all running vertical now with 30-year Treasury yields on the cusp of hitting the 5% mark.” This sharp rise in yields is symptomatic of further liquidation in Treasuries, signaling distress in market segments that are often overlooked, such as funding, credit, and repo markets.
Amid this turbulence, stocks have also come under pressure, with futures linked to the S&P 500 dropping by 2%. Bitcoin briefly dipped below $75,000 before stabilizing around $76,000, according to recent CoinDesk data.
The MOVE index, which measures options-implied price volatility in the Treasury market, surged to 140, the highest point since October 2023, reflecting the increasing market uncertainties.
As risk sentiment deteriorates, the possibility of Bitcoin plummeting to the $73.8K-$74.4K range grows ever more real. This zone is particularly critical; holders of bullish long positions on major exchanges face potential liquidation risks, as shown by analytics firm Hyblock Capital.
Liquidation signifies the forced closure of positions by exchanges due to margin deficiencies, and significant long liquidations can further exacerbate price volatility.
Hyblock has identified liquidation clusters at various levels, most notably between $73,800 and $74,400, and lower down between $69,800 and $70,000, with the potential for further drops should prices breach the $70,000 threshold. Conversely, bullish sentiment may trigger short liquidations in areas identified between $80,900-$81,000, $85,500-$86,700, and $89,500-$92,600.
In conclusion, the current market dynamics necessitate vigilance as both traditional financial markets and cryptocurrencies face downtrend risks. Investors are advised to stay informed and consider potential outcomes as they navigate this volatile landscape.
