- Total crypto liquidations surpassing $257 million a day after the Fed increased interest rates by 0.25%.
- Bitcoin and Ethereum liquidations dominated the trend on Thursday, according to data from Coinglass.
- Large liquidations come in the wake of tight action by U.S. regulators.
The March 22 Federal Reserve decision on interest hikes was most awaited by crypto traders recently. The two-day Federal Open Market Committee (FOMC) meeting took place against the backdrop of an intensifying banking crisis following the collapse of Signature and Silicon Valley Bank and the voluntary closure of Silvergate bank.
The Fed increased interest rates by 25 basis points in line with expectations. Several analysts believed that the U.S. central bank would pause in Quantitative Tightening (QT) policy in the wake of the turmoil in the banking sector. However, the Fed did not pivot as the consumer price index (CPI) reached 6% year-on-year, according to the last data released by the U.S. Bureau of Labor Statistics.
Hours after Fed Chair Jerome Powell’s remarks, the crypto market experienced extreme volatility, with the big crypto dropping from a high just below $29,000 to a low of $26,678 on Bitstamp. The overall crypto market cap decreased by 2.5% over the 24 hours that followed Powell’s speech. However, the cumulative market value remains above the $1 trillion mark. Although Bitcoin lost weight over the same period, it has since recovered and trades at $28,100 at press time.
Crypto traders liquidated nearly 68,000 positions following the Fed’s quarter-point interest rate high, with total crypto liquidations surpassing $25,000 million by Thursday.
According to data from Coinglass, liquidations on Bitcoin and Ethereum dominated the day.
Crypto Traders Liquidate More That $130M In BTC
Total liquidations on the pioneer cryptocurrency came in at approximately $132 million, while Ether crypto traders lost $51 million by Thursday. Around $8 million more liquidations came from XRP positions.
According to data from Coinglass, the single most significant liquidation order was worth $7.39 million, carried out on Bitmex.
More data shows that there have been increasing crypto outflows for six straight weeks. According to CoinShare’s Digital Asset Fund Flows Weekly Report released on March 20, crypto assets saw withdrawals close to half a trillion in one week. BTC led the trend with outflows of $113 million last week.
According to the report, the outflow is caused by the need for liquidity triggered by the ongoing banking crisis more than a bearish outlook. It mentions that the current scenario is similar to the one observed when the COVID-19-induced panic first broke out in March 2020.
Regulators Double Down On Crypto Businesses
The large liquidation orders by crypto traders have also been attributed to the tight actions by the U.S. Securities and Exchange Commission (SEC). The SEC recently filed charges against crypto guru Justin Sun and the companies associated with him, the TRON Foundation and BitTorrent Foundation, for selling unregistered securities. Other firms being sued by the regulator are Rainberry Inc, Austin Mahone, and Deandre Cortex Way.
On the same day, the mass liquidations were being made, Coinbase, the largest crypto exchange in the U.S., received from the SEC signaling intent to sue over crypto offerings.
Coinbase reported receiving a letter from the SEC known as a Wells notice, in which regulators say they believe companies or individuals violated investor-protection laws. The agency’s commissioners must approve any legal actions or enforce agreements. Thus, the notices are not final.
Some reports Do Kwon, the founder of Terraform labs, who has been on the run since the collapse of the Terra ecosystem, has been arrested in Montenegro. U.S. prosecutors have charged him with all kinds of fraud, including wire fraud, commodities fraud, and securities fraud. This may add pressure to the headwinds in the market.
Overall, there is a positive outlook in the market. Investors believe that the resilience displayed by Bitcoin amid the banking crisis could attract institutional investors back into the market. This would provide the headwinds required to initiate a complete recovery, with Bitcoin finally making the much-anticipated trip to $30,000.