Bitcoin and Ether Lead Market Lower in Washout of Leverage

The entire digital asset market took a sharp nosedive on Wednesday, as BTC and ETH shed 5% and 8% respectively. But there were a few notable exceptions in DeFi.

article-image

Blockworks exclusive art by Axel Rangel

share

key takeaways

  • $500 million in liquidations on crypto derivatives, though DeFi blue chips AAVE and 1INCH buck the trend with double-digit gains
  • Eth 2.0’s ‘Beacon Chain’ completed its ‘Altair’ hard fork shortly before 7:00 am ET.

Bitcoin and the broader digital asset market fell sharply during early morning hours in New York, with BTC notching a roughly 5% decline and ETH tumbling over 8% in the space of a few hours, driven by cascading liquidations of traders using dangerously high levels of leverage.

In recent days both the amount of leverage and the open interest in crypto derivatives markets have been climbing to levels not seen since the September 7, 2021 mini-crash. This has been a frequent theme of the current bull market rise, and the third such drawdown in the past week alone.

Ether’s drop was more pronounced, though also similar to an 8% drop seen on October 21, after the second largest cryptocurrency registered an all-time high.

Loading Tweet..
Loading Tweet..

Fundamental moves

Ethereum’s ‘Beacon Chain’ — also known as Eth 2.0 — which will be merged with the current Ethereum mainnet in 2022, underwent a scheduled upgrade at approximately 7:00 am ET. Dubbed Altair — after the twelfth brightest star in the night sky — it’s “the first major network upgrade that will have an exact rollout time,” according to ethereum.org, due to the Proof-of-Stake nature of the new chain’s consensus mechanism.

The market correction preceded the upgrade, but appears unrelated. There is now over 8 million ETH  — still $32 billion in dollar terms, even after Wednesday’s drop — staked in the Beacon Chain.

Bitcoin has seen a slew of positive fundamental news in recent days, with additional investment avenues in traditional finance being added by Wisdom Tree and Valkyrie, following a wildly successful launch of the first futures-based ETF from ProShares.

“On the heels of the first bitcoin futures ETF being approved last week, many now believe that an ether futures ETF will soon be approved as well,” wrote Noelle Acheson, Head of Market Insights at Genesis, in an email to Blockworks. “We are seeing these assumptions drive interest on our desk and the overall price of ether over the past seven days, evidenced in ETH’s outperformance over BTC.”

But the prospect of an ether ETF is unlikely in the near term, Acheson notes, due to a relative lack of liquidity in the ether futures market on the CME, and the need for greater regulatory certainty, chiefly from the US SEC, as to its potential status as a security.

Outliers: AAVE and 1INCH

New listings on centralized exchanges still can have a strong influence on the price of even well-established DeFi names. The 35% rise in money-market protocol AAVE and and more than 80% for decentralized exchange 1INCH is an apparent consequence of new listings announced against BTC trading pairs by Korean exchange Upbit.

Both names subsequently gave back about half their gains along with the larger market decline.

Bitcoin CME Futures have been trending down since their peak seven days ago at $67,680. Nasdaq and S&P 500 futures are trading flat, falling about -0.3% during the crypto market skid before bouncing.

This story was updated on October 27 at 8:27 am ET.

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member