The cryptocurrency market has experienced significant losses, mirroring extreme selloffs in global equity markets. Over $1 billion in liquidations have occurred, marking the worst daily performance since the FTX collapse in November 2022.
Yen Carry Trades Impact Risk Sentiment
On August 5, the total crypto market cap dropped 15.80% to a six-month low of $1.694 trillion. Bitcoin and Ether, controlling over 70% of the market, led the decline. The fall is linked to reduced appeal in yen-dollar carry trades after the Bank of Japan (BOJ) raised its interest rate to 0.25% on July 31.
This appreciation of the yen disrupted carry trades, causing traders to close positions in riskier assets like stocks and crypto. Additionally, geopolitical tensions and US recession risks have added to the selloff.
Massive Liquidations and Bearish Sentiment
Crypto liquidations totaled $1.08 billion in the past 24 hours, with $919.54 million being long positions, showing over-leveraged bullish traders. The open interest in crypto futures dropped by 15%, indicating traders are closing positions. Negative funding rates for top coins, such as Bitcoin and Solana, suggest a bearish outlook among futures traders.
Descending Triangle Breakdown
The market's current losses are part of a descending triangle breakdown, a bearish pattern. The crypto market cap has entered this breakdown phase, eyeing further declines toward $1.596 trillion, the support level from December 2023-February 2024.
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