Trade war escalation risk behind the flash crash. Here’s what it means for the crypto market.
Crypto news earlier this week revealed that Bitcoin open interest surged to record highs above $94 billion.
While this was a reflection of rising market confidence as top coins pushed to new highs, it also highlighted massive underlying liquidation risk.
In a surprising turn of events, crypto news in the last 24 hours shifted drastically, causing a flash crash across the crypto and stock markets.
Coinglass revealed that over $19 billion worth of liquidations occurred across the crypto market in the last 24 hours.
About $16.7 billion of those liquidations were longs. This was not surprising considering that hype around coins like Bitcoin previously caused FOMO and aggressive bullish expectations.
The $19 billion plus worth of liquidations in the last 24 hours marked the highest single-day liquidation event recorded in history.
This was even higher than some of the most prolific black swan events that have taken place in the past.
Bitcoin liquidations alone amounted to $5.36 billion in the last 24 hours. ABOUT $4.6 billion worth of BTC liquidations were longs.
The cryptocurrency market dropped from $4.13 trillion to $3.24 trillion during the Friday flash crash. This meant that crypto liquidity retested levels last seen in July.
Crypto liquidity snapped back rapidly to $3.7 trillion after the sharp drawdown. This confirmed that investors also saw the pullback as an opportunity to buy back crypto at discounted prices.
The recovery saw crypto prices push back to a key support level that has been playing out for the last 4 months.
The bearish market conditions kicked off after U.S President Donald Trump announced plans for another tariff war escalation.
He revealed that the U.S will slap China with a 100% tariff as of 1 November.
Risk-on assets experienced a massive crash earlier this year when China and the U.S engaged in a tariff war earlier this year.
The prospects of another escalation dampened investor sentiment, with bearish expectations triggering a rush to safety and hence causing heavy outflows.
The bearish crypto prices in the market also influenced the stock market. The S&P500 tanked by 3.37% in the last 24 hours. But unlike crypto, the S&P500 did not experience an immediate partial recovery.
One of the potential reasons for this was that the stock market will have a more direct impact compared to the crypto market.
For example, U.S tech stocks selling their products in China or securing raw materials from China will face significant disruption.
Although the crypto market was not affected directly, the tariff war escalation still made crypto news and had an impact.
This was because the escalation was expected to cause more uncertainty in the investment landscape.
The sentiment shift was already evident in the fear and greed index which dipped from greed at around 64 points on Friday, to fear at 27 points at the time of observation
The market sentiment dropped to levels last seen in September. This latest tariff war escalation also meant there was uncertainty about recovery.
The market will likely remain subdued if the tariff war gets drawn down longer, just as it did in the first half of the year.
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