Bitcoin price suddenly crashed by roughly $1.4K in minutes to $10,600 and rebounded slightly as weekend volatility continues.
The price of Bitcoin (BTC) and Ethereum’s Ether (ETH) plunged by 13% and 21%, respectively, within minutes on Aug. 2. The move liquidated more than $1 billion worth of futures contracts as BTC/USD dropped from around $12,000 to as low as $10,550.
BTC/USD 1-hour chart. Source: Tradingview
There appear to be two main reasons behind the sudden cascade of liquidations. First, the volume in the cryptocurrency market tends to drop during weekends. Second, the market was heavily swayed to longs or buyers.
Surprise weekend move hits the crypto market yet again
The cryptocurrency market tends to determine large liquidations during the weekend. The liquidity often drops as there are fewer active traders within the market. Lower volume results in massive price movements, as cryptocurrencies become more vulnerable.
Mass liquidations become more likely during the weekend because one large liquidation could trigger a cascade of liquidations. When a protracted contract gets liquidated, as an example, it forces the customer to plug sell, causing selling pressure.
As many several dollars worth of long contracts began to induce liquidated, Bitcoin and Ether dropped rapidly. Bitcoin declined from $12,000 to $10,600 within quarter-hour, while ether declined from $417 to $300.
But mass liquidations happened several times within the past five months. Most notably, on the so-called “Black Thursday” on March 13, $1 billion worth of liquidations occurred. Similarly, right before the halving on May 11, the worth of Bitcoin dropped to $8,100 leading to mass liquidations.