Bitcoin’s price plummeted over 10% on early Tuesday, as El Salvador announced that it would officially accept the major cryptocurrency as the nation’s legal tender.
According to CoinMarketCap, Bitcoin’s slump from Monday accelerated as the crypto failed to hold its $50,000 price level — sliding from $51,000 to $44,700 within a single hour. The sudden sell-off resulted in $1.44 billion in futures liquidations of Bitcoin trades in the past 24 hours, according to data from ByBt.
Total liquidations chart on ByBt.com
The single largest reported liquidation occurred on Huobi-BTC — worth $43.7 million at the time. As expected, the vast majority of the liquidations were longs, representing about 88% of the total liquidations.
BTC daily chart on Tradingview.com
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Following the brunt of the pullback, El Salvador president Nayib Bukele tweeted that he is “[b]uying the dip,” purchasing another 150 BTC worth about $6.9 million, adding on top of the 400 BTC position. The average cost of the purchase appears to be around the $46,000 price range.
Is This the “Reset” Bitcoin Needed to Trend Higher?
Data from Glassnode shows that the mean Bitcoin funding rate (average across all exchanges) had steadily increased throughout August.
BTC Futures Perpetual Funding Rate – All Exchanges. (The data was calculated using the average funding rate (%) set by exchanges for perpetual futures contracts.) Source: Glassnode
Funding rates rose from 0.015% in early August to as high as 0.03% at the start of September.
Derivatives exchange ByBit saw its funding rate rise to as high as 0.085% in late August.
Relatively high funding rates can indicate that the market is overheating, with too many traders being overleveraged. More often than not, high funding rates will lead to a pullback — which was the case earlier this May.
More specifically, funding rates on major exchanges Binance and Huobi dropped to 0.023% and 0.021% at the peak of the sell-off. OKEx, on the other hand, reverted to a negative funding rate of -0.009%, per Bybt.
BTC Funding Rates Chart (8 hours) on ByBt
As Bitcoin and the broader crypto market slightly recovered from the sell-off, funding rates have stabilized at 0.01% for Binance, Huobi, and ByBit. Funding rate on OKEx remains at a negative of -0.0005%.
With the futures market cooling down, it’s likely that price levels will begin to stabilize once again.
Featured image from UnSplash