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OKEx Insights Market Watch Weekly Institutional investment DeFi Bitcoin

BTC price drop triggers the largest liquidation ever, but bull market isn’t done yet

2021.04.19 Robbie Liu

The biggest liquidation in history doesn't seem to have dampened buying enthusiasm — Market Watch Weekly 

The last week in crypto markets was clearly event-driven. The bullish sentiment was extreme ahead of the Coinbase listing, driving BTC's price to a new all-time high of 64,847 USDT per the OKEx spot price. However, once the public listing was complete, the market leader began to pull back and eventually crashed on Sunday, when liquidity is usually thin. The 16% drop took the price down to 50,900 USDT at one point — BTC's lowest level since March 26. The plunge also triggered the largest 24-hour liquidation ever, worth $9.54 billion, across derivatives exchanges. 

More than 970,000 traders and $9.54 billion of positions were liquidated in one day
More than 970,000 traders and $9.54 billion of positions were liquidated in one day. Source: Bybt (screenshot taken at 12:30 am UTC, 4/19)

BTC ultimately closed the week with a five-day losing streak, the likes of which were last seen at the beginning of September 2020, when BTC retraced from 12,000 USDT to 10,000 USDT levels.

However, it is also interesting to note that Sunday saw the largest negative daily BTC net flow from exchanges since November 2019, per data from Glassnode

Net transfer volume of BTC from/to exchanges
Net transfer volume of BTC from/to exchanges. Source: Glassnode

In last week's Futures Friday article, we noted how the premium for the quarterly contract BTCUSD0625 had been pushed up to 11%, the highest level in this bull run. The high premiums inevitably attract arbitrageurs who short the quarterly contract and hold the spot, potentially putting some pressure on the continued upswing of prices. During Sunday's decline, both the quarterly as well as the bi-quarterly futures were briefly but significantly below the perpetual swap price. This unusual occurrence in a bull market caught many traders off guard.

Forward futures were significantly lower than the price of the BTCUSD perpetual swap. Source: TradingView

Institutions also caught by surprise

On the institutional side, CME updated the latest (as of April 13) Bitcoin futures position data on April 17. In this reporting period, BTC price resumed its upward trend, reaping over $5,000 in gains as it set another all-time high. However, considering the pullback that started in the middle of last week and the sharp drop on Sunday, it seems that institutional investors were not expecting the dramatic price action. 

In this period, the open interest declined from 9,865 to 9,653 contracts (with a standard contract being 5 BTC). Asset-manager accounts saw their long positions rise slightly from 355 to 366 contracts, while their short positions declined from 519 to 340 contracts. The short positions made a new low of eight weeks, indicating that asset managers were chasing the rally.

Leveraged funds, meanwhile, increased their positions in both directions. Their long positions rose from 2,481 to 2,979, while short positions increased from 7,477 to 7,634. The percentage change in long positions was more substantial, however. 

CME Bitcoin futures data — Number of asset-manager accounts' longs vs. shorts. Source: Quandl

Altcoin season is far from over

The market is still in altcoin season, as reflected in how rapidly most altcoins rebounded after Sunday's crash. Moreover, the Altcoin Season Index also stayed above 95 last week, and we saw several "older" coins post major gains.

The market is still in an absolute altcoin season.
The market is still in an absolute altcoin season. Source: Blockchain Center

BCH and BSV led the major altcoins sector last week, up 45% and 24%, respectively. LTC and ETH also reaped gains of 12% and 5.5%, respectively, significantly outperforming BTC's negative weekly return of -5.1%. Moreover, DOGE ended up reaping a weekly return of 324%, attracting a lot of new investors, but its volatility was also extremely high, falling 50% at one point from an all-time high of 0.45 USDT. 

Weekly returns of major altcoins, 4/12 to 4/18.
Weekly returns of major altcoins, 4/12 to 4/18. Source: TradingView

DeFi TVL hit a new high

The total value locked in DeFi protocols had set an all-time high of $70 billion on Friday but then declined 8% to $64.5 billion per data from DappRadar. The largest project in terms of TVL is Uniswap, locking $8.83 billion. The decentralized exchange is followed by MakerDAO and Compound with $8.02 billion and $6.52 billion in TVLs, respectively. 

Total value locked in DeFi
Total value locked in DeFi. Source: DappRadar

While TVL continues to grow, DeFi assets themselves are not in the spotlight as such. Only YFI achieved two consecutive weeks of gains worth 20% or more, and other major DeFi tokens have posted mixed performances.

Weekly returns of major DeFi tokens, 4/12 to 4/18.
Weekly returns of major DeFi tokens, 4/12 to 4/18. Source: TradingView

Looking ahead this week 

The S&P 500 Index is rising for the fourth consecutive week and has entered the overbought territory. The Nasdaq Index is also just one step away from its all-time high, as leading technology stocks such as Google and Microsoft set new all-time highs. Meanwhile, the Cboe Volatility Index, or VIX, fell to where it was at the end of February last year when stock indexes plunged. All of this indicates that risk is building up, and any downside movement is likely to impact an already sensitive BTC price.

VIX fell to where it was at the end of February 2020
VIX fell to where it was at the end of February 2020. Source: TradingView

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.