Get the Finder app 🥳

Track your credit score

Free

Bitcoin bloodbath: Step-by-step explainer of what just happened to the crypto market

Posted: 25 September 2019 11:42 am
News

Explosion!

Postmortems show a terminal concentration of REKT (really excessive krypto trading) in the patient's system.

It's a cryptocurrency bloodbath. Bitcoin prices fell by 15% in the space of a few minutes, and the rest of the crypto markets are similarly experiencing a great deal of pain today.

But why?

Let's walk through what happened, step by step.


Picture not described

XBTUSD chart by TradingView


00:00 UTC, 22 September. Or is that 23 September? Whatever

At precisely midnight (UTC) on whatever day it is that lies exactly between 22 and 23 September, the highly-anticipated Bakkt Bitcoin futures platform opened for trading. It didn't go well.

Trading volumes were miserable, which was quite problematic seeing as the whole point of Bakkt was to gauge Bitcoin appetite among serious investors in a transparent, well-regulated market. As the hype was replaced by disappointment, prices started sinking as traders started pricing the Bakkt lift out of the market.

While it may not look like much, the change caused by Bakkt's flop of a launch was quite stark.

Bitcoin's volatility was at its lowest point since April right as it launched. Then as soon as it did, prices started trending downwards, visibly departing from the $10,000 range it had been living in.

Like, 18:30ish UTC, 24 September

Prices continued slumping, but this time some of the degenerate gamblers sophisticated traders on BitMEX had their enormous open long positions squeezed out of existence. This seismic event was captured by sophisticated analytics services such as Datamish and the BitMEX Rekt Twitter account.

Picture not described

Datamish

The kicker is that these liquidations – about $100 million all up – happened before the main price drop. They would start a chain reaction though, the impact of which would be felt all around the entire small part of the world that pays attention to cryptocurrency prices.

It was the start of a quintessential long squeeze.

This is when a price decline triggers a chain reaction of panic selling. In this case, the mass liquidations caused traders to sell big in an effort to cut their losses, which triggered a further price drop.

18:45 UTC or thereabouts, 24 September

All that selling pushed prices down, which resulted in another bout of liquidated longs, which once again triggered the same chain reaction of even more selling and more liquidations.

The chain reaction was now out of control. The die had been cast and prices were now in freefall. Buyers withdrew from the market, recognising that they could do naught to staunch the bleeding and that they're better off waiting for things to settle down before buying.

Fifteen minutes of terror passed, and when the dust settled onlookers realised that Bitcoin prices had fallen to critical levels, of only $8,500.

If you haven't already, you should watch HBO's Chernobyl. It does a really good job of explaining what happened to the crypto markets today.

19:30:00:00 UTC, 24 September

Following the initial blast, onlookers and paramedics gathered around Bitcoin prices in an effort to help the wounded. Buyers shoved wads of cash into mortal wounds, and long positions re-entered the market.

Tragically, these good Samaritans had unknowingly moved into the blast radius of a second explosive price drop. The second explosion was smaller than the first, but the gathered crowds meant the toll was similar, with another $200 million liquidated on BitMEX.

Bitcoin prices were now in a crater of about $8,000.

In more tasteful and less analogous terms, what basically happened is that traders stacked up the longs in expectations of a rebound, but then things went the other way instead and there was a second long squeeze right after the first.

Aftermath

That's just Bitcoin.

Other cryptocurrencies felt the pain too and in most cases had it even worse than Bitcoin did. Bitcoin Cash, Bitcoin SV and EOS all ended up over 20% smaller after the drop. Overall, double-digit losses were the norm.

There are two reasons the broader crypto markets also caught the fallout from this Bitcoin long squeeze.

The first is because BTC is the main coin against which all other cryptocurrencies are traded. When everyone is selling another cryptocurrency for 0.002 BTC each, and BTC prices drop, that means the value of that other currency has also dropped.

The second reason is that everyone knows the crypto markets follow BTC, and in many cases are even more volatile. Bitcoin dropping is a pretty good reason to sell just about any other cryptocurrency.

Hopefully, this step-by-step explainer helps when your kids ask what happened to their college fund.



Also watch


Disclosure: The author holds BNB, BTC at the time of writing.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Latest cryptocurrency news

Picture: Shutterstock

Latest crypto guides

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site