The cryptocurrency market faced a sharp downturn on Friday, with Bitcoin (BTC) and Ether (ETH) both witnessing declines of approximately 10% within a 24-hour period. At one point, BTC was trading near $82,200, while ETH hovered around $2,700. The altcoin sector endured even steeper losses, with some tokens plummeting by as much as 20%.
The CoinDesk 20 Index (CD20) fell by 10%, and the CoinDesk 80 Index, which tracks the performance of the next-largest cryptocurrencies, decreased by 12%, marking a significant negative trend for all included assets. This sell-off can be attributed to a liquidity crisis that originated during the liquidation events in October, which left the market vulnerable to further price volatility.
Notably, the liquidity situation remains precarious, as highlighted by recent research from CoinDesk, indicating that the market is still struggling to recover. This lack of liquidity has set the stage for more severe price fluctuations across the board. The impact of the liquidity crisis has not been confined to the cryptocurrency sector; U.S. equities have also been affected, with the Nasdaq 100 now trading 9.4% lower than its record high on October 31.
The derivatives market reflects this uncertainty, with Bitcoin”s 30-day implied volatility index (BVIV) surging past 64%, while the ether volatility index has reached 87%, the highest level since April 10. These indicators suggest growing apprehension among traders as spot prices continue to decline.
In terms of trading positions, Bitcoin”s open interest (OI) has dropped dramatically from 752K BTC to 700K BTC in a single day, as the price decline forced many bullish leveraged bets to liquidate. Analysts have noted that some market participants are engaging in “knife catching,” a strategy of purchasing futures in a downtrending market, which is likened to attempting to catch a falling knife. Open interest across various tokens, including DOGE, ENA, and ASTER, has witnessed significant declines exceeding 15% in the last 24 hours.
On the options trading platform Deribit, the flow of options for BTC and ETH has shown a clear preference towards put options. In Bitcoin, put spreads comprised 46% of the total block flow in the past day, with put diagonal spreads trailing in a distant second place. A similar trend is observed in the flows for Ether, indicating a bearish sentiment prevailing among traders.
