Cryptocurrency Markets Plunge, Triggering $8.3 Billion Liquidation Event
A widespread sell-off across the cryptocurrency market on February 5 resulted in over 170,000 positions being liquidated, totaling $8.3 billion, as Bitcoin and other major coins experienced significant price drops.
The cryptocurrency market faced a sharp downturn on Tuesday, February 5, with Bitcoin leading the decline. The price of the leading cryptocurrency rapidly fell below $71,000, marking a new low in the recent market correction. Ethereum also experienced a substantial drop, trading at $2,088.21 per coin – a decline of more than 8%. Other prominent cryptocurrencies, including BNB, XRP, and Dogecoin, followed suit, contributing to the broad-based market weakness.
Data from CoinGlass revealed the extent of the damage, with more than 170,000 traders liquidated in the past 24 hours, resulting in a total liquidation amount of $8.3 billion. This wave of liquidations underscores the heightened volatility and risk currently present in the crypto space.
The sell-off occurred against a backdrop of regulatory scrutiny and official statements regarding government policy on digital assets. U.S. Treasury Secretary Janet Yellen, during a congressional hearing, affirmed that the U.S. government intends to retain Bitcoins obtained through asset forfeiture. However, she explicitly stated that the government will not direct private banks to increase their Bitcoin holdings during market downturns, nor does it possess the authority to “bail out” the cryptocurrency market.
In a discussion with California Representative Brad Sherman, a known critic of cryptocurrency, Yellen emphasized the lack of authority held by both herself and the Financial Stability Oversight Council (FSOC) to intervene in the market. She also revealed that the value of confiscated Bitcoin currently held by the government has risen significantly, from approximately $500 million to over $15 billion.
Market analysts are weighing in on the potential trajectory of Bitcoin. One analyst noted that the market is currently experiencing “extremely panicked mood.” They cautioned that if Bitcoin fails to maintain support at $72,000, a further decline to $68,000 is likely, potentially revisiting the 2024 lows after an initial rebound.
According to analysis from CoinDesk, an on-chain indicator known as “Bitcoin P&L Supply” suggests the market may be approaching a historic bottom. This indicator assesses the relationship between the overall market’s cost basis and the current price by comparing the number of Bitcoins held at a profit versus a loss.
Adding to the bearish sentiment, Michael Burry, known for his prescient short-selling calls in the 2008 financial crisis – and popularized by “The Big Short” – warned this week that Bitcoin has demonstrated its nature as a purely speculative asset, lacking the hedging capabilities typically associated with precious metals.
The current market conditions highlight the inherent risks associated with cryptocurrency investments and the importance of careful risk management.
