Liquidation

FTX on the verge of purchasing BlockFi in $25M fire sale: Report

The cryptocurrency derivatives exchange could potentially buy out the troubled lender for pennies on the dollar.

Cryptocurrency exchange FTX is close to purchasing digital asset lender BlockFi’s remaining assets for $25 million, according to CNBC.

According to sources close to the matter, BlockFi’s equity investors were wiped out and are now writing their positions off at a loss. In addition, the FTX deal could take multiple months to close, opening up the possibility that the price tag could shift over that period. In June 2021, BlockFi had a reported valuation of $5 billion.

BlockFi CEO Zac Prince has since denied these rumors, taking to Twitter on June 30 to refute speculation that the company is being sold for $25 million.

Earlier this year, BlockFi had over 1 million clients, over $10 billion in assets and deposits, and had distributed more than $700 million in crypto rewards and interest. However, BlockFi’s fortunes quickly soured after it reportedly became a major creditor of the now troubled hedge fund Three Arrow Capital, also known as 3AC. As a result, it was forced to liquidate 3AC’s positions amounting to $1.33 billion, likely at a severe loss as the bear market intensified in June. 

The situation was exacerbated by 3AC posting collateral for the loan in $400 million worth of Grayscale Bitcoin Investment Trust (GBTC) shares, which often trade at a discount or premium to spot Bitcoin (BTC) prices. At the time of liquidation, GBTC shares were trading at a 34% discount to the net asset value of its Bitcoin holdings, which plunged further as BlockFi began closing the position.

Related: FTX may be planning to purchase a stake in BlockFi

Earlier this month, BlockFi said it would fire 20% of its 850-strong staff due to profitability woes in the short term. Just last week, FTX had extended a $250 million line of credit to BlockFi and denied rumors that it was acquiring the ill-fortuned firm. 

Update: Added Zac Prince’s latest Twitter update denying the company is being sold for $25 million. 

Large Bitcoin liquidations mean one man’s pain is another man’s pleasure — Time to buy the dip?

Pro traders were forced to cut their losses after margin and futures markets became over-leveraged, creating a potential entry point for bullish buyers.

Bitcoin (BTC) has been unable to restore the $24,000 support since Celsius, a popular staking and lending platform, paused withdrawals from its platform on June 13. A growing number of users believe Celsius mismanaged its funds following the collapse of the Anchor Protocol on the Terra (LUNA; now LUNC) ecosystem and rumors of its insolvency continue to circulate.

An even larger issue emerged on June 14 after crypto venture capital firm Three Arrows Capital (3AC) reportedly lost $31.4 million through trading on Bitfinex. Furthermore, 3AC was a known investor in Terra, which experienced a 100% crash in late May.

Unconfirmed reports that 3AC faced liquidations totaling hundreds of millions from multiple positions agitated the market in the early hours of June 15, causing Bitcoin to trade at $20,060, its lowest level since Dec. 15, 2020.

Let’s take a look at current derivatives metrics to understand whether June 15’s bearish trend reflects top traders’ sentiment.

Margin markets deleveraged after a brief spike in longs

Margin trading allows investors to borrow cryptocurrency and leverage their trading position to potentially increase returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) to enlarge exposure.

On the other hand, Bitcoin borrowers can short the cryptocurrency if they bet on its price decline, and unlike futures contracts, the balance between margin longs and shorts isn‘t always matched. This is why analysts monitor the lending markets to determine whether investors are leaning bullish or bearish.

Interestingly, margin traders boosted their leverage long (bull) position on June 14 to the highest level in two months.

Bitfinex margin Bitcoin/USD longs/shorts ratio. Source: TradingView

Bitfinex margin traders are known for creating position contracts of 20,000 BTC or higher in a very short time, indicating the participation of whales and large arbitrage desks.

As the above chart indicates, even on June 14, the number of BTC/USD long margin contracts outpaced shorts by 49 times, at 107,500 BTC. For reference, the last time this indicator stood below 10, favoring longs, was on March 14. The result benefited the counter-traders at that time, as Bitcoin rallied 28% over the following two weeks.

Bitcoin futures data shows pro traders were liquidated

The top traders’ long-to-short net ratio excludes externalities that might have impacted the margin instruments. By analyzing these whale positions on the spot, perpetual and futures contracts, one can better understand whether professional traders are bullish or bearish.

Exchanges’ top traders Bitcoin long-to-short ratio. Source: Coinglass

It’s important to note the methodological discrepancies between different exchanges, so the absolute figures have less importance. For example, while Huobi traders have kept their long-to-short ratio relatively unchanged between June 13 and Ju15, professional traders at Binance and OKX reduced their longs.

This movement could represent liquidations, meaning the margin deposit was insufficient to cover their longs. In these cases, the exchange’s automatic deleveraging mechanism takes place by selling the Bitcoin position to reduce the exposure. Either way, the long-to-short ratio is affected and signals a less bullish net position.

Liquidations could represent a buying opportunity

Data from derivatives markets, including margin and futures, show that professional traders were definitely not expecting such a deep and continuous price correction.

Even though there has been a high correlation to the stock market and the S&P 500 index posted a 21.6% year-to-date loss, professional crypto traders were not expecting Bitcoin to drop another 37% in June.

While leverage allows one to maximize gains, it can also force cascading liquidations such as the recent events seen this week. The automated trading systems of exchanges and DeFi platforms sell investors’ positions at whatever price is available when the collateral is insufficient to cover the risk and this put heavy pressure on spot markets.

These liquidations sometimes create a perfect entry point for those savvy and brave enough to counter-trade excessive corrections due to lack of liquidity and the absence of bids on the trading platforms. Whether or not this is the final bottom is something that will be impossible to determine until a few months after this volatility has passed.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

BTC price crashes to $20.8K as ‘deadly’ candles liquidate $1.2 billion

Carnage for short-term traders and speculators as volatility destroys both long and short positions on the way to $20,000.

Bitcoin (BTC) came within $1,000 of its previous cycle all-time highs on June 14 as liquidations mounted across crypto markets. 

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Bitcoin price hits 18-month lows

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD hitting $20,816, on Bitstamp, its lowest since the week of December 14, 2020.

A sell-off that began before the weekend intensified after the June 13 Wall Street opening bell, with Bitcoin and altcoins falling in step with United States equities.

The S&P 500 finished the day down 3.9%, while the Nasdaq Composite Index shed 4.7% ahead of key comments from the U.S. Federal Reserve on its anti-inflation policy.

The worst of the rout was reserved for crypto, however, and with that, BTC/USD lost 22.4% from the start of the week to the time of writing.

The pair was also “uncomfortably close” to crossing the $20,000 mark, trading firm QCP Capital noted, this representing the all-time high from its previous halving cycle, something which had never happened before.

In a circular to Telegram channel subscribers, QCP flagged both the inflation topic and potential insolvency at fintech protocol Celsius as driving the sell-off.

“We have been expressing concern about the collapse of a significant credit player since the LUNA blowup. The market is now panicking about the impact and contagion if Celsius becomes insolvent,” it explained:

“Some key liquidation levels that the market is looking out for are 1,150 in ETH, 0.8 in stETH/ETH and 20,000 in BTC. We are getting uncomfortably close.”

For other analysts, all bets were off when it came to guessing the BTC price floor or whether key trendlines would hold as support.

Rekt Capital warned that the 200-week simple moving average (SMA) at $22,400 had not been accompanied by significant volume interest, leaving the door open for a test of lower levels.

“BTC has reached the 200-week MA but the volume influx isn’t as strong as in previous Bear Market Bottoms formed at the 200 MA,” he told Twitter followers:

“But downside wicking below the 200 MA occurs & perhaps this wicking needs to occur this time to inspire a strong influx of volume.”

At the time of writing, the 200 SMA appeared to be acting more like resistance than support on low timeframes.

BTC/USD 1-week candle chart (Bitstamp) with 200 SMA. Source: TradingView

Altcoin futures index shows full force of retracement

On altcoins, Ether (ETH) fell to 40% below the previous week’s high to near the $1,000 mark.

Related: Lowest weekly close since December 2020 — 5 things to know in Bitcoin this week

Should that break, it would be the first time that ETH/USD had traded at three-digit prices since January 2021. As Cointelegraph reported, the pair had already crossed its $1,530 peak from Bitcoin’s previous halving cycle.

Across altcoins, there was little cause for celebration in this downtrend, Rekt Capital argued, highlighting flagging alt presence versus Bitcoin.

In a sign of the pain affecting all crypto traders, meanwhile, data from on-chain monitoring resource Coinglass confirmed cross-market liquidations passing $1.2 billion in just 24 hours.

Crypto liquidations chart. Source: Coinglass

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.