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⚡Bitcoin Faces Imminent Liquidity Crisis🦀

Croxroad

13 Mar 2024 — 4 min read

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🔆 Analyst Sounds Alarm

Bitcoin, currently priced at $71,979, is standing at the edge of a potential "sell-side liquidity crisis" projected for September, warns Ki Young Ju, CEO of CryptoQuant. The surge in institutional investment, particularly through the highly successful US-based spot Bitcoin exchange-traded funds (ETFs), has propelled the total value of these ETFs to nearly $30 billion. Ki emphasises the looming risk of an inadequate BTC supply to meet the escalating demand, citing the addition of over 30,000 BTC by ETFs in just the past week.

According to Ki, the bears in the market won't gain traction until the inflows into spot Bitcoin ETFs start to subside. He foresees a sell-side liquidity crisis within the next six months, suggesting that it could result in an unforeseen surge in BTC prices due to limited sell-side liquidity and a thin order book. Despite the Grayscale Bitcoin Trust (GBTC) experiencing daily outflows averaging $500 million, the dollar value of GBTC's BTC holdings has remained relatively stable since the ETF's January launch. This stability underscores the complex interplay between BTC price dynamics, institutional flows, and the potential for future market crises, leaving the market in a state of anticipation and vigilance.

🫗 FOMO and Corrections Collide

Over the past 24 hours, the cryptocurrency market experienced a whirlwind of activity, witnessing the liquidation of over $361 million worth of leveraged trades. Bitcoin, hitting a new all-time high of $73,050, later retraced below $70,000 on March 12. The considerable price swing primarily led to the liquidation of long positions, wiping out $258 million, while short sellers faced losses exceeding $103 million, according to data from Coinglass, a crypto trading and information platform.

This massive long liquidation marks the most significant since March 5, when Bitcoin tumbled to $60,800 after reaching its previous all-time high around $69,000. Despite the volatility, Bitcoin's price swing was relatively moderate this time, fluctuating only 4.85% between its March 12 low of $69,365 and the high of $72,733, as reported by CoinGecko. At the time of publication, Bitcoin has stabilised around $71,400.

A spokesperson from 10x Research suggested that the recent uptick in volatility may be attributed to traders anticipating a price correction. There is a growing nervousness among traders as Bitcoin has failed to rally during United States trading hours when ETFs come into play. Simultaneously, the fear of missing out (FOMO) remains a significant factor that could potentially sustain the ongoing rally.

Bitcoin and Ether (ETH) were the leading contributors to liquidations, with trades amounting to $106.3 million and $73.3 million, respectively. Other cryptocurrencies, including Solana (SOL), Dogecoin (DOGE), and the Bitcoin-based memecoin Ordi (ORDI), also experienced notable liquidations. The majority of these liquidations, totaling $152 million, took place on crypto exchange OKX, while Binance traders faced combined losses of $128.4 million.

In a broader context, short sellers have faced substantial losses, surpassing $6 billion in their attempts to bet against publicly traded crypto firms during the first 11 months of 2023. This comes as Bitcoin rallied by 130% to $37,800 over the same period, according to research firm S3 Partners.

🫰 Thodex

Thodex, a Turkish cryptocurrency exchange founded in 2017 by Faruk Fatih Özer, faced a sudden shutdown in April 2021, citing an emergency "6-hour maintenance period." However, what was supposed to be a brief interruption extended to five days, leading to the platform's closure. Following the shutdown, it was revealed that Özer had fled Turkey, leaving behind more than 100,000 investors and an alleged embezzlement of over $2 billion.

Despite more than 60 arrests made in the months following Özer's escape, he remains at large to this day. The Turkish legal system, equipped with measures against financial fraud, stipulates a potential 40,000-year sentence for Özer if apprehended. The Thodex saga stands as a stark reminder of the challenges and risks associated with cryptocurrency exchanges, as investors and authorities grapple with the aftermath of one of Turkey's most significant crypto-related scandals.