$100B Crypto Market Washout Was Normal Activity, Say Analysts

Crypto markets have shed around $100 billion in less than 24 hours. However, with market capitalization increasing, these flash crashes and washouts have become the norm and are even necessary, according to analysts. 

Total crypto market capitalization has crashed from a 21-month high of $1.82 trillion to around $1.71 trillion. Roughly $100 billion exited the space over the past 24 hours.

Another Crypto Market Flush 

However, these 5% market flushes are perfectly normal for digital asset markets, much of which are highly leveraged. 

On January 4, technical analyst ‘CrediBULL Crypto’ reiterated the notion that:

“Funding was actually already pretty much back to baseline before the drop occurred.”

This means that crypto derivatives’ open interest and funding rates had been falling before the final flush-out. 

BTC futures OI and funding rates. Source: X/@CredibleCrypto

Open interest refers to the number of open contracts yet to be settled. Funding rates refer to the fees paid by traders to maintain leveraged positions.

The analyst explained that OI was flushed a bit,

“But that occurs with almost every up/down move as there is always some level of liquidations anytime BTC moves.”

However, this level of liquidation was “average” and not the magnitude that we see when the market is truly overheated and overleveraged. 

“This was just a ‘normal’ healthy correction all things considered.” 

Read more: What are Perpetual Futures Contracts in Cryptocurrency?  

According to Coinglass , there were almost $700 million in liquidations over the past 24 hours. Furthermore, around 85% of them were long positions, with BTC dominating them. 

Technical analyst Willy Woo commented , “Long demand in the system is getting frothy.”

He explained the “basis trade” was “buying spot BTC while shorting perpetual futures in a hedged trade to collect the funding rate paid by bullish speculators.”

There was a similar leverage flush out in early December. Moreover, analysts blamed “ over-leveraged derivatives degens ” at the time. 

ETF Rumors Flying  

Some have attributed the crypto crash to a report claiming that the SEC will not approve any spot Bitcoin ETFs this week.

However, industry experts remain confident that there will be a batch of approvals by January 10, the first deadline for the Ark 21 Shares ETP. 

Nevertheless, if the SEC were to reject the highly anticipated ETFs, Bitcoin prices are likely to retreat into the $30,000 range. 

At the time of press, crypto markets have mostly stabilized. BTC is trading at $43,197 while ETH is changing hands for $2,291.