Bitcoin has plunged by more than 10% with pundits – and Friday’s expiry of CME futures – suggesting a further ‘rapid descent’ is possible.
The number one cryptocurrency lost $1000 in the space of 30 minutes overnight, sending prices to a three month low.
An underwhelming first day for Bakkt, which traded 71 BTC monthly futures contracts, is the likely catalyst.
Its performance pales in comparison to CME futures’ first-day volume of 5298 BTC in December 2017. That’s a 75x difference.
However, Bakkt reports volume doubled on day 2.
Price discovery unfolding before our eyes
On our second day of operations, totally transparent trading in monthly Bakkt Futures Contracts shows Bitcoin ending the day at $8,560 on 166 lots changing handshttps://t.co/QRpGj5wV4M
— Bakkt (@Bakkt) September 24, 2019
$500m longs liquidated
The price looked like it was headed below $8000 at one point, but Bitcoin has since recovered slightly to around $8600.
The plunge was exacerbated by margin calls at BitMEX which saw $500 million Longs liquidated.
Altcoins were even harder hit with Ethereum down 16.1% in the past 24 hours and XRP (-10.7%), Bitcoin Cash (-23.4%), Litecoin,(-13.8%), EOS (21.8%), and Bitcoin SV (-26.7%) suffering double-digit losses as well.
The plunge also caused a flash crash on Binance, with the low liquidity BTC/BUSD pair briefly trading Bitcoin for $1800.
A ‘rare event’ even for Bitcoin
“Even for Bitcoin, this is a pretty rare event,” said Messari director of product Qiao Wang.
Senior market analyst at eToro, Mati Greenspan said prices had been on the tear this year on expectations of institutional interest – so Bakkt’s launch was seen as “an important milestone”.
“A large part of the narrative driving the massive bull run this year was surrounding wider institutional adoption… volumes so far have been underwhelming.
“The entire episode seems like a giant case of ‘buy the rumour, sell the news.'”
Investors worry over further potential losses
Investors are braced for further losses, with around half of CME futures open interest set to expire on Friday.
Many believe the expiration of futures creates volatility and puts downward pressure on prices.
In another bearish sign, volumes on CME BTC futures have dropped significantly from late June highs around $1.8 billion to around $300 million today.
> 50% of CME bitcoin futures open interest set to expire this Friday
Institutions' interest peaked at the June expiry when Libra was making the headlines pic.twitter.com/u5zZ7XJsWg
— skew (@skew_markets) September 24, 2019
Gold bug Peter Schiff could barely contain his glee at the market meltdown, tweeting that Bitcoin had “finally broken below the support line of the large descending triangle it has been carving out for months.
“This is a very a bearish technical pattern, and it confirms that a major top has been established. The risk is high for a rapid descent down to $4,000 or lower!”
#Bitcoin has finally broken below the support line of the large descending triangle it has been carving out for months. This is a very a bearish technical pattern, and it confirms that a major top has been established. The risk is high for a rapid decent down to $4,000 or lower!
— Peter Schiff (@PeterSchiff) September 24, 2019
Crypto analysts react
Jeff Dorman, chief investment officer at crypto asset manager Arca told Bloomberg:
“Price action is being driven by short-term technical analysis right now, as every low price that Bitcoin has bounced off of, and every high price that has been reached has proven to be resistance.
“Because crypto is still dominated by short-term focused traders, these telegraphed narratives often become self fulfilling prophecies.”
Crypto analyst DonAlt said he wasn’t rushing to buy the dip:
“A range of 100 days just broke to the downside. If this is a bullish shakeout it’ll be obvious once BTC reclaims $10k. If this is bearish I don’t want to be long.
“Buying this feels like buying $5500 after the $6000 break. Something I’m not willing to do.”
A range of 100 days just broke to the downside.
If this is a bullish shakeout it'll be obvious once BTC reclaims $10k.
If this is bearish I don't want to be long.
Buying this feels like buying $5500 after the $6000 break.
Something I'm not willing to do.
— DonAlt (@CryptoDonAlt) September 24, 2019
Keep calm and carry on
Bakkt has only just launched, however, and ICE founder Jeff Sprecher told Fortune recently that it could be weeks or months before Wall Street considers Bakkt a success or a failure.
Some of Bakkt’s largest prospective clients are yet to get permission to trade physically settled futures.
Bitcoin proponent Brian Kelly told CNBC’s Fast Money that Bakkt still looked good for the long term.
“Because they have this physical storage, which would be electronic like cold storage, this is like a custody solution, so it will bring those institutions in that need that custody solution,” he said.
And on Monday, Three Arrows Capital CEO Su Zhu tweeted that he believed volumes would build.
“Bakkt will be likely first a trickle and then a flood,” he said
“The reality is that most regulated futures contracts get low adoption on (day one) simply (because) not all futures brokers are ready to clear it, many (people) want to wait and see, the tickers are not even populated on risk systems, etc.”