Bitcoin ETF Applications Trigger Massive Liquidation in Crypto Market

Crypto Market experiences significant liquidation as Bitcoin plunges over SEC concerns.

On January 3, 2024, the crypto market experienced one of its most significant liquidations as Bitcoin (BTC) plummeted due to fears that the United States Securities and Exchange Commission (SEC) would reject all spot Bitcoin exchange-traded fund (ETF) applications.

Cryptocurrency exchange Bitfinex reported that the drop in BTC led to the largest wave of liquidations since August 2023, with long and short positions losing $591 million and $94 million, respectively.

Earlier this month, Bitcoin’s 11% drop caused the asset to fall from $45,400 to $40,400 within a few hours. Despite the digital asset quickly recovering and rising to $47,000 the following day, the dip resulted in the third-largest number of long liquidations since the bear market reached its lowest point in November 2022.

Interestingly, the drop occurred on the day of the Genesis Block, which is globally recognized as Bitcoin’s 15th birthday.

The event was sparked by a report from crypto-financial service platform Matrixport, suggesting that the SEC might deny or delay all spot Bitcoin ETF applications. Following the report, over $1.8 billion in open interest positions were eliminated through forced liquidations or aggressive selling.

 “We expect the market in the early months of this year to be vulnerable to pullbacks, with increased risk to leveraged longs. It is hard to say whether there will be further pullbacks, but we believe that these are healthy for the market and are a result of overly bullish sentiment being ‘reset’ along with the funding rate,” Bitfinex Alpha’s 2024 outlook special edition stated.

Despite Matrixport’s report, Bitcoin ETF experts and the crypto community remain confident that the applications will be approved this week. The applicants’ submissions of amended 19b-4 filings on January 5 strengthened the community’s belief that the SEC would soon announce its decision on the products.

Bitcoin has been rallying in anticipation of the potential approval, closing Q4 2024 with a 56.5% increase, marking the third-highest quarterly rise since 2019.

Furthermore, long-term BTC holders are strategically positioning themselves in anticipation of price reactions to the potential approval. On December 27, 2023, the fifth-highest Coin Days Destroyed (CDD) value in the past 18 months was recorded, indicating strategic positioning by this investor group.