Bitcoin Volatile as Crypto Liquidations Approach $1 Billion

Bitcoin Tumbles Below $80,000, Erasing Billions in Crypto Bets

Bitcoin’s price dipped below the $80,000 mark on Thursday for the first time in over a month, extending a slide initiated by inflation data and liquidating nearly $1 billion in leveraged cryptocurrency positions. The digital currency is currently trading around $82,000 after a period of heightened volatility.

Market-Wide Selloff

The downturn was not confined to Bitcoin. Ethereum and XRP saw declines of nearly 5%, while Zcash plunged almost 10%. Across the broader market, only five cryptocurrencies within the top 100 managed to post gains exceeding 1%, with most major digital assets trading in negative territory.

Data from CoinGlass revealed that 177,440 traders were liquidated over a 24-hour period, totaling $948.22 million. Long positions accounted for the vast majority of these liquidations, amounting to $858.96 million, or 90.6%. Ethereum led the pack with $282.03 million in liquidations, closely followed by Bitcoin at just over $200 million.

This marked the third-heaviest day for long liquidations in the past 90 days, trailing only October 8 and August 22. The largest single liquidation involved a $12.03 million Bitcoin long position on Binance, which was forcibly closed at $80,208.96.

Inflationary Pressures and Market Mechanics

Liquidations occur when traders borrow to speculate on price movements, and the market moves against their bets. Once losses erode the collateral, exchanges automatically sell the positions, a process that can further depress prices and trigger subsequent liquidations of leveraged long positions.

The catalyst for the recent downturn appears to be Wednesday’s inflation report, which indicated a year-over-year consumer price increase of 3.7% in September, exceeding the forecasted 3.6%, with core inflation at 2.6% against expectations of 2.5%. Thursday’s Producer Price Index, a measure of business input costs, also rose more than anticipated, climbing 6.3% annually compared to a 5.5% forecast.

A significant contributor to this inflation is the surge in oil prices, with Brent crude nearing $104 a barrel, approximately 70% higher than a year ago, amid geopolitical tensions. This price increase impacts fuel, shipping, and virtually all goods that require transportation to reach consumers.

The Fed’s Shadow and Risk Sentiment

Elevated inflation typically prompts central banks, like the Federal Reserve, to consider higher interest rates. This, in turn, can boost Treasury yields, making U.S. government debt more attractive to investors. A bond offering a yield of around 5% with minimal risk can make Bitcoin a less appealing investment. Furthermore, higher interest rates increase borrowing costs and strengthen the U.S. dollar, diminishing the availability of cheap capital that leveraged crypto traders rely on.

Iliya Kalchev, an analyst at Nexo, views the selloff as a broader retreat from risk assets rather than solely a Federal Reserve-driven event. He noted that stocks and copper have also declined, while gold has risen and South Korea’s Kospi index has fallen approximately 8%.

Technical Outlook and Recovery Prospects

“Bitcoin has slipped to the bottom of the $81,000 to $87,000 range it has held since late September, and Glassnode flags $80,000 as the level to watch,” Kalchev told Decrypt. He added that Bitcoin is now trading roughly 2% below the average cost basis of U.S. spot ETF holders, which is near $82,300. This level has been a key indicator, with Bitcoin closing above it on 21 of the 24 days since September 21. “That puts ETF buyers back underwater, and reclaiming it is the first test of any rebound,” Kalchev stated.

On the daily chart, Bitcoin has broken below $81,603, a significant support level from its August-to-October rally. The price reached a low of $79,711 before buyers pushed it back towards $80,925, near a rising trend band around $80,286.

The Relative Strength Index (RSI), a momentum indicator, has fallen to approximately 44, suggesting a bearish sentiment, though a “golden cross” on longer-term charts indicates the overall uptrend remains intact.

A daily close above $81,603 could pave the way for a retest of $84,245 and the swing high of $87,422. Conversely, a break below $80,286 could see the price fall to $78,002 and then $75,092.

Kalchev observes early indications that the selling pressure may be easing, including a cooling of profit-taking activity. However, he emphasized that a sustained recovery will require more than a simple bounce.

“Three things need to line up for Bitcoin to push through,” Kalchev explained. “ETF flows have to turn consistently positive, after $681 million of outflows last week and a single $177 million inflow day. Selling by long-term holders has to ease.”

For a bullish market to re-emerge, Kalchev believes leverage should be accompanied by sustained buying rather than just a temporary rebound. He also noted that a Federal Reserve policy that halts at one additional 25 basis point hike would alleviate some of the current market pressures.

The Federal Reserve is scheduled to announce its interest rate decision on October 28, followed by core PCE inflation data on October 29 and October payroll figures on November 6.