Crypto Market Tanks: Bitcoin Correlation with S&P 500 Reaches 2021 High & USD Longs at Highest Level since June 2019
In the past 24 hours, 417,654 traders were liquidated for $2.58 billion, with Binance leading at 28% of its share despite underreporting, and now, CME is leading Bitcoin OI at $3.72 bln.
On another wild day in the cryptocurrency markets, prices tanked to levels not seen since mid-October or September.
During this brutal sell-off, Bitcoin's price fell to about $42,000 in the spot market, representing over a 39% pullback from the $69,000 all-time high set early last month. As of writing, Bitcoin is trading just above $47,300.
While Bitcoin only dropped to $42k in the spot market, it fell even lower on derivatives platforms. On Deribit, BTC crashed to just under $40k and on Huobi to about $28,800.
The BTC/USDC trading pair in Huobi Global dropped to as low as $28801.87 when it fell sharply, showing insufficient depth. pic.twitter.com/2J0Ll3rfFQ
— Wu Blockchain (@WuBlockchain) December 4, 2021
As we reported, historically, a red month has resulted in a red December, and now it’s to be seen if sentiments will recover by the end of the month or we’ll consolidate here.
Ether meanwhile went to $3,580 while perpetual contracts dropped to about $3,400. While this represents a 26.6% drop from $4,880 ATH, much lower than Bitcoin’s, from December 1st, BTC crashed just over 26% while ETH 22.5%.
ETH has now recovered to $3,900. This latest sell-off came amidst the calls for a flippening that would put Ether as the number one crypto asset. ETHBTC, meanwhile, is still above 0.080.
Maybe this a generic reflection of overconfidence in the market.however there are no coincidences in markets .
Especially when i can map when the same loud mouths start chanting and a 18-30% correction happen every time for over a year… https://t.co/daf2zJHaUu
— IamNomad (@IamNomad) December 4, 2021
The total crypto market cap has now tanked to $2.33 trillion, down from $3 trillion early last month and currently at the early October level.
In Tandem With Stocks
However, the crypto market didn’t tank alone; rather, it was in tandem with the global stock market. As such, the 100-day correlation coefficient of Bitcoin and the S&P 500 climbed to its highest reading of the year at 0.33.
On Friday, stocks initially rose only to slip as US employment growth slowed down considerably in November as 594,000 people entered the labor force, the most in 13 months. But the unemployment rate plummeted to a 21-month low of 4.2%.
Crypto has held up well over the past 2 weeks in the context of the sell-off in growth / momentum names despite the correlation today.
Not something that has typically happened over the past 5 years despite fears of tax selling, profit / carry protection, etc…. into YE. pic.twitter.com/hY2eRlNo8N
— John Street Capital (@JohnStCapital) December 3, 2021
This week, Federal Reserve Chairman Jerome Powell also told lawmakers that the US central bank should consider speeding up the tapering of bond purchases at its Dec. 14-15 policy meeting.
This was the worst December opening performance for US stocks in two decades.
The US dollar, meanwhile, is strong above 96 and in line with this USD net long positioning soared to $23.99 billion, its highest level since mid-June 2019. For Bitcoin, net short positions climbed to 1,691 contracts after falling to the smallest since mid-January at just 160 contracts last week.
On what happened.
The consensus was that tradfi markets closing red on Friday means a bloody Monday. People were frontrunning that narrative in crypto.
Coupled with the looming uncertainty of Omicron and overleveraged market, it triggered chain liquidations.
— Lex Moskovski 🐙 (@mskvsk) December 4, 2021
After early September, the crypto market had its biggest liquidation event as 417,654 traders liquidated for $2.58 billion in the last 24 hours, with Binance accounting for 28% and OKEx 26% of them. These numbers, however, are underreported because Binance and Bybit limit their liquidation data.
As a result, open interest has taken a big hit. OI on Bitcoin futures has fallen to $17 billion, early October level, down 41% from early November ATH. With this, CME has captured first place with $3.72 bln OI followed Binance at $3.56 bln, as per Skew.
As for Ether, the total OI has gone down to $9.81 bln, from $12.98 bln on Dec.1 and $14.66 bln on Nov. 10. Here, both FTX and Binance are leading at $2 billion.
Now that so much leverage has been wiped out from the market, the funding rate has normalized and gone negative on most crypto exchanges. The highest Bitcoin funding rate is currently on Huobi at 0.01%.
Have to say it out loud, bears were most definitively right, some notable ones out there. Direction from here imo will continue to depend on equities, which is unclear, but for as long as funding remains this negative odds of another sharp correction are very low. pic.twitter.com/5CqgsKE0Uh
— Alex Krüger (@krugermacro) December 4, 2021
During this crypto carnage, ETH fees surged to nearly 1000 gwei, making it extremely costly for small users to use the Ethereum network. Additionally, the majority of the exchanges stopped working, meaning users couldn’t take advantage of the volatility.
But at the same time, El Salvador bought this dip, as announced by President Nayib Bukele but missed the bottom by a few minutes. Following in the footsteps of Bukele, Tron (TRX) founder Justin Sun also bought 150 BTC on this dip.
El Salvador just bought the dip! 🇸🇻
150 coins at an average USD price of ~$48,670 🥳#Bitcoin🎄
— Nayib Bukele 🇸🇻 (@nayibbukele) December 4, 2021
Amidst the onslaught of bears, the bullish factor is the market-value to realized-value metric (MVRV), which represents the ratio of free-float Bitcoin market cap to the realized value.
As of writing, MVRV has fallen to 1.941, which was at 2.98 in October and 4.02 in February.
In its latest report this week, Messari’s Ryan Selkis noted that “If history were to repeat itself, what’s that mean in dollar terms? Hitting a MVRV of 3 again this year would take us to the $100,000-125,000 range. Not bad!”
“The king has no real rival,” he added.