Key Takeaways
Why did crypto markets crash?
The crypto market crash was fueled by liquidations, a decrease in volume, ETF outflows, and large Options expiry.
What’s next?
The markets could be gearing for a reversal, just like in the last quarter of 2024.
The crypto markets crashed for the second consecutive day this week. This was after the crypto market started to decline this week, with the capitalization falling below $4 trillion, now at $3.91T.
Massive liquidations, a drop in volume, an institutional ETF sell-off, and options expiry have fueled the crash. In the meantime, we’ll be going into details on these factors.
Massive crypto liquidations and volume decline
The 23rd of September started with massive liquidations of more than $1.7 billion across the whole of crypto markets. This was the largest figure since the start of the year.
These liquidations were majorly longs of about $1.65B, while shorts accounted for only $145 million. Wintermute market maker facilitated the flashing of all 50x leveraged orders on Binance in only one session.
The biggest liquidations happened on Bybit, Binance, and OKX, respectively. Almost a billion in valuation affected derivatives on Bybit, according to CoinGlass data.
Source: CoinGlass
The largest liquidation happened on Ethereum [ETH], about $497 million. Still, more liquidation clusters were building on Bitcoin [BTC], both in shorts and longs.
The shorts stacked at $113.8K and longs at $111.5K act as price magnets. Solana [SOL] saw almost $100M in lost capital during this period.
That way, more liquidations could be on the horizon. The high leverage could weaken the markets if prices continue falling. Still, this was viewed as a reset before the crypto market rally in Q4.
Additionally, the daily trading volume of the crypto markets dropped by more than 12.93%. The volume of the whole market was about $294 million, with that of Bitcoin at $55B.
Options expiry and ETF outflows
The crash was also fueled by the large Options expiry, which triggered sell pressure. On top of that, the expiry triggered stop losses, leading to the closure of other orders.
About $265M in call options and $155M in puts were expiring for Bitcoin. That is almost half a billion in capital leaving the markets. Additionally, about $67M in Ethereum options also faced the same fate.
Source: Deribit
More analysis revealed institutional ETF sell-offs, with BTC and ETH leading on this front. Bitcoin ETFs saw more than $363 million in outflows, indicating capital exit from the market.
Also, Ethereum tokens were being sold by ETF issuers. To be specific, Fidelity sold 7,454 ETH worth $31.2 million, as per Whale Insider.
What’s next after the crypto crash?
The massive crypto crash that has occurred could be a precursor to a broader market reversal.
Historically, such moves have led to market upturns, just like the crash on the 5th of August that started the crypto rally in Q4, 2024.
