Q9 Weekly | Liquidation Cascade

Q9 Capital
5 min readAug 25, 2023

25 August 2023

  • Crypto markets fall sharply, BTC at $26.2k
  • Significant +$1bn liquidation event
  • BitGo raises Series C at $1.75bn valuation

Crypto prices came under pressure this week as investors continue to grapple with the market’s summer doldrums and look ahead to the Fed’s annual meeting in Jackson Hole on Friday.

BTC now sits at $26.2k after briefly hitting a two-month low of $25.5k — a decline of -12.1% over two weeks. As prices fell rapidly last Thursday, more than $1bn of crypto futures and options contracts were ultimately liquidated — the highest level of liquidations since June 2022 — intensifying the downward pressure on prices.

Altcoins took a bigger hit with Dogecoin, XRP, Polygon, Solana, and Avalanche all seeing declines between 10 and 20% over the week. XRP has lost all its gains achieved after Ripple Labs’ landmark court ruling over the SEC in July. XRP is currently exchanging hands at 51 cents, down -11.9% in the past week and -29.8% over a 30-day period. BNB has fallen to its lowest level in over a year.

Bitcoin and Ethereum Prices Fall on Thin Volumes

Source: TradingView

The extreme event last Thursday can best described as a “liquidation cascade”. This phenomenon resulted in one of the most significant single-day wipeouts of open interest ever recorded.

Significant BTC Liquidation Event

Source: Coinglass

In terms of the total USD value allocated in open futures contracts, this was the second-largest decrease, underscoring the sheer scale of the event. The event stands as the 5th most significant single-day decline in Bitcoin futures open interest, specifically pertaining to perpetual futures contracts.

5th Most Significant Decline in BTC Futures Open Interest

Source: Glassnode

Why Did it Happen?

The selloff was triggered by a spate of bad headlines last Thursday that include:

· Fed officials saying they may need to hike interest rates further, as part of ongoing efforts to tame inflation.

· Chinese property-development giant Evergrande filing for Chapter 15 bankruptcy in New York, sparking fears that failures in the Chinese real-estate sector could spill into other markets.

· SpaceX writing down the value of the Bitcoin it owns and allegedly selling all of its holdings.

It’s still unclear if last week’s market selloff was a short-term blip, or a sign that crypto-market volatility is returning as we roll into autumn. However, given the low summer trading volumes expect to see some wild moves up and down as Bitcoin tries to march back to $30k.

It is possible that any semblance of dovishness from Jay Powell on Friday could help inspire a recovery. Beyond that, we also have a potential ruling in the Grayscale case and ETH futures ETF approvals to look forward to as possible catalysts.

However, one popular technical indicator is showing BTC is experiencing extreme oversold conditions. Bitcoin’s 14-day relative strength index (RSI) has dropped well below 30, indicating oversold conditions. The indicator has dropped to its lowest since the coronavirus-induced crash of March 2020.

RSI Shows BTC Looks Oversold

Source: CoinDesk

DeFi Down

The amount of money stashed in DeFi protocols has dwindled to the lowest level since February 2021. TVL has slumped to $37.5bn, slipping below the previous post–bull market nadir of $38bn set in December. Typically, when the largest cryptoassets fall, traders pull liquidity out of more speculative assets like those within DeFi to mitigate risk.

Source: DeFi Llama

To the Futures… and Beyond

The US SEC is poised to allow the first ETFs based on Ether futures, a major win for several firms that long have sought to offer the products.

The regulator isn’t likely to block the products, which would be based on futures contracts, according to people familiar with the matter. Nearly a dozen companies, including Volatility Shares, Bitwise, Roundhill and ProShares, have filed to launch the ETFs.

It couldn’t immediately be determined which funds would get green lights. Officials have indicated that several might be approved by October.

BitGoGoGo

In a chaotic year for US crypto companies, a few startups are still raising huge chunks of money. This includes crypto custody firm BitGo who have raised $100mn at a $1.75bn valuation in its Series C.

Nowadays it seems like most headlines about crypto centre on regulations. So it does seem logical that one of the biggest rounds of the year would go to a licensed crypto startup. The round is eye-catching considering how few nine-figure raises there have been this year. BitGo’s is only the sixth such round in a down year for crypto funding.

Full Circle

Coinbase is acquiring a minority stake in Circle, as the dual founders of the USDC stablecoin dissolve the stablecoin’s technical legal owner the Centre Consortium. Circle, which for years managed the logistics of issuing USDC, will bring the stablecoin fully in-house — with revenues from USDC’s reserves flowing to both companies. More details can be found in the firms recent blog post.

The news follows PayPal’s recent stablecoin launch.

In the News…

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