Falling bull market? Liquidation Intensifies Average Crypto Price Reversion
The cryptocurrency market rebounded strongly from Tuesday’s losses, with Bitcoin climbing above $ 34,000 to $ 34,380 from the new 2021 low of $ 28,845 on Coinbase. The price of ether also rallied to nearly $ 2,045 after touching $ 1,700 on the sale.
The market-wide liquidation resulted in the liquidation of $ 1 billion for two consecutive days, away from more than $ 8.6 billion on May 18 and more than $ 10 billion on April 17, according to Bybt.
These latest numbers, however, are expected to be much higher given that Binance only liquidates per second and now accounts for less than 30% of the total liquidation share whereas before making the changes it was responsible. of about 50% of the crypto market liquidates.
The sell-offs are actually the reason prices have rebounded so well. “Closeouts lead to higher probabilities of mean reversion. The more liquidations you see, the stronger the reversion, ”noted trader and economist Alex Kruger.
According to him, this is why buying lows is easy in a bull market and difficult in a bear market.
“Corollary: In general, the best time to buy is during intraday panics when liquidations are taking place, not after you get the reversal. In other words, long when you are feeling extremely bearish, sell when it is extremely bullish. Go against your instincts, ”he shared on Twitter.
Sam Trabucco, a quantitative crypto trader at Alameda, also explained this on a Twitter thread as he shared that hundreds of millions of dollars in net buy liquidations and vice versa are building momentum.
Since a large portion of these purchases and sales come from liquidations, which are not organic, the propensity to return is even greater.
As for what happened, “people overreact to news, liquidations exacerbate that overreaction, and then people trade the other way around when they realize it.”
“The price of BTC has been very dynamic on a multi-day timescale,” and the narratives that have prevailed in the market lately have been Chinese FUD driving prices down as Bitcoin is bad for the environment and institutions are underwater and have to sell.
But Trabucco argued that none of this is concrete, because China FUD isn’t really new, the US is far from regulating crypto, and Michael Saylor “isn’t screwed.”
During this weeklong crash, Binance’s average funding rates on Bitcoin perpetual contracts, which matters a lot to the market, paid longs as open interest fell, suggesting longs were already closing.
FTX, Bybit, OKEx and others had a similar pattern that “people were closing for some reason and selling aggressively to do it.”
And with the highest net selloffs in recent days, that spike helped fuel the comeback as “no one wanted to sell up to $ 30,000 (because) buying there is a predictable trade,” Trabucco said.
“It looks like MAYBE today marks another paradigm shift? We will have to wait and see, ”he concluded.
Bitcoin / USD
34,016.2759 $ 2,585.24 7.60%
- Volume 61.86b
- Change $ 2,585.24
- Open $ 34,016.2759
- Circulation 18.74 m
- Market capitalization 637.5 b
The bottom of the bull market after? Liquidation Intensifies Average Crypto Price Reversion first appeared on BitcoinExchangeGuide.
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