Why did Bitcoin and ETH prices correct sharply overnight?

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In the past 24 hours, futures positions valued at $ 1.89 billion were liquidated after Bitcoin (BTC) and Ether (ETH) fell sharply and Binance’s BTC was below $ 46,000.

BTC / USDT 15-minute price chart (Binance). Source: TradingView.com

Most of the liquidations came from Bitcoin and Ether, which accounted for $ 555 million and $ 336 million, respectively. However, altcoins like XRP, EOS and Litecoin (LTC) also saw large liquidations as the market collapsed.

Liquidations across crypto exchanges. Source: Twitter @CryptoRank_io

The lion’s share of the liquidations took place on Binance, while Bitfinex saw the least. This suggests that the former may have the largest percentage of inexperienced traders, according to Paolo Ardoino, Bitfinex’s chief technology officer.

“Bitfinex has almost 1 billion open interest, but an extremely low liquidation rate compared to the competition,” explained Ardoino.

“Finex seems to have traders who use leverage a little more carefully.”

Factors for the short-term price decline

Bitcoin was relatively robust compared to the rest of the market during the correction. Most of the time, large-cap altcoins and decentralized financial tokens saw the biggest losses, like Cosmos’ ATOM and SushiSwaps SUSHI, which fell over 20% in a single day.

The market has likely been corrected because the altcoin futures market has been extremely overheated for an extended period of time.

In the past few weeks, funding rates for many altcoins on platforms like Binance Futures have increased to around 0.3% to 0.7%. This is 30 to 70 times higher than the 0.01% average.

This is likely the reason for Bitcoin’s relatively small drop of around 7% compared to the 20% to 30% corrections in the altcoin market.

But unlike Bitcoin, ether showed short-term weakness, even though Bitcoin rose to a new all-time high, Cointelegraph reported.

As BTC began to fall, Ether saw a much larger loss compared to Bitcoin, falling 9% over the same period.

Throughout February, particularly when the ETH / BTC pair showed strength, ETH saw less of a decline compared to Bitcoin when it entered pricing. ETH’s weakness against Bitcoin has had a negative impact on the altcoin market for the past 24 hours.

Why is recovery likely?

According to Ki Young Ju, CEO of CryptoQuant, there are enough stable coin reserves in the cryptocurrency exchange market to enable Bitcoin to take another step up.

In the crypto market, side capital is often stored in stable coins instead of cash or in bank accounts, as they are much easier and faster to use on exchanges. Ju said it is an ideal time to buy bitcoin as a newfound rally is more likely. He wrote:

“If you are a long term investor, now is the time to buy BTC. I’m not sure how many fixes would be on the way, but the on-chain indicator says there are enough stable coins in the exchanges to put up another leg compared to bitcoins. “

Stablecoins ratio. Source: CryptoQuant

In addition to the favorable fundamentals, altcoins have rallied quickly after a surrender-like correction.

Bitcoin and Ether followed the strong rally in altcoins, rebounding to $ 48,000 and $ 1,800, respectively.

The combination of the rapid recovery of large-cap altcoins and the abundance of stablecoins on the exchanges increases the likelihood that the BTC rally will continue.