The cryptocurrency market experienced significant price fluctuations on Thursday as investors eagerly awaited a decision from U.S. regulators regarding the approval of spot-based exchange-traded funds (ETFs) for Ether (ETH). Spot-based exchange-traded funds (ETFs), according to Forbes, allow for shares of the fund to be created or redeemed based on market demand. Their significance in the cryptocurrency market is that they provide investors with exposure to the Bitcoin price movements of the underlying asset without needing to directly hold it. This news caused a surge in trading activity, leading to an increase in liquidations as traders attempted to capitalize on the market volatility. Although these ETFs have received the green light for listing, they are not yet available for trading.
In the nerve-wracking hour before the official announcement, the price of ETH plunged to 3,500 dollars near the U.S. market close. Unconfirmed reports of approval then triggered a surge to nearly $3,900, with ETH ultimately settling above $3,800 after confirmation. Bitcoin (BTC) also experienced a rollercoaster ride, dipping to the low-$66,000s before spiking to 68,300 dollars and then retreating to below $68,000. Interestingly, ETH displayed more resilience, gaining 1.5% over the past 24 hours compared to BTC's 3% decline. The broader market, taken into account by the CoinDesk 20 Index, fell by 1.6% during the day.
The volatile price swings triggered a surge in liquidations of leveraged crypto derivative positions. According to CoinGlass data, these liquidations surpassed $350 million, marking the highest level since May 1st. Liquidations occur when exchanges force the closure of leveraged positions due to insufficient funds to maintain them (margin calls). Most of the liquidated positions were "long positions," which tells us that traders were betting on price increases. This indicates that over-leveraged traders were caught off guard by the sudden price drop. The data also shows that ETH traders were the most affected, with $132 million in liquidations, followed by $70 million in BTC derivatives.
This recent episode highlights the volatility that can still occur in the cryptocurrency market, even with positive regulatory news. Investors, especially those using leverage, should carefully manage their risk exposure.
