Over a billion dollars liquidated in crypto’s worst day since FTX

Key Takeaways

• Last week saw crypto suffered its worst 24 hours since FTX as over one billion dollars in derivatives were liquidated on Thursday
• Derivative volume outstrips the extremely low spot volume, with cascading liquidations having the potential to exacerbate price moves
• Volatility was sparked by sell-off in the bond market
• Developments re-affirm how vulnerable Bitcoin is in the short-term to the highly unusual macro climate 

Following an extended period of rest in the crypto markets, the beast re-awakened last week. Crypto markets plummeted late Thursday and early Friday, led as always by Bitcoin. The world’s largest cryptocurrency shed 7% in what amounted to the largest one-day drop since the spectacular collapse of FTX last November. 

The year 2023 has been characterised thus far by the unusual fact that crypto’s rise has been slow and steady. Aside from a jump in March amid the regional bank crisis, Bitcoin has been perceptively devoid of the usual spikes and freefalls. 

The Bitcoin price displays this clearly in the next chart, as well as Friday’s trip south.

Digging further into last week’s price drop shows that, remarkably, Bitcoin fell 8% in just ten minutes from 9:35 PM GMT on Thursday evening. Looking at data from Coinglass, this contributed to a surge of liquidations. All in all, over one billion dollars was liquidated in what amounted to the biggest day of liquidations since the FTX demise (anytime the phrase “since FTX” is used in crypto, it rarely spells good news). 

The flood of liquidations highlights how much greater the volume was in derivatives markets than spot, with the latter remaining extremely thin. Order books have been perceptibly shallow ever since Alameda evaporated amid the FTX debacle (liquidity was thin even before then). 

What caused the sell off?

The underlying cause of the volatility was a sell-off in the bond market, with yields spiking to multi-year highs. Yields on long-term US government debt neared their highest level since 2007, UK 10-year gilts rose to their highest yield since 2008, and Germany’s 10-year bund reached its highest yield since 2011. 

Higher yields spell trouble for risk assets, as we are well aware by now, with Bitcoin sent tumbling amid the tightening monetary environment last year. The recent move was borne out of investors betting that…