I would like to present a microstructural view of this situation as a whole.
As always, this thread is full of ideas, charts, and comments.
Repost, if you enjoyed the analysis.
First, when discussing this type of fall, one must determine where the pressure was greatest.
We observed something crazy: Coinbase traders started selling aggressively almost an hour before the mega-dump.
Sure, the biggest drop was triggered by a cascade of liquidations, but this constant selling pressure was crucial in pushing the price into a region where overleveraged positions were forced to close. How can we tell that the market was overheating? It’s simple: financing costs plus rising open interest. These two factors are the drivers of the current market and indicate that people are overleveraged.
You can see that BTC is different from all the other instruments we analyzed. What is important is the strong buying pressure that was generated on ETH after the fall. The relative strength of the last few days was also visible: could someone buy?
Personally, I love analyzing market impacts. If I could focus on one characteristic of the market, it would be market impact. And here you see something crazy: the market impacts for XRP on Coinbase are mind-boggling.
Something extremely strange happened. In a large and relatively mature market, we saw a cascade of large sell orders that caused the market to fall by more than 5%. We don't know exactly what happened, but it's certainly unusual.
You can see that these sell orders are not normal. Something has happened in the market. It might be interesting to monitor this situation over the next few days. Maybe a major player has been forced to sell like there is no tomorrow.
When such a situation occurs, it is usually a cascade of involuntary orders. Market makers absorb this selling pressure and cover it, causing the signal to propagate across exchanges. For perpetual swap exchanges, this means that stop losses and liquidations are triggered, and the final impact is much more pronounced, especially if it occurs within a few minutes.
Remember that cryptocurrencies like XRP have been able to increase by several hundred percent, even though their market capitalization is comparable to that of the largest American companies. Compared to these market capitalizations, market liquidity remains low.
The next thing you always see in a hot market is a quick price reversal from the low. There are a lot of liquidations, limited liquidity, and still a lot of profiteers who want to buy the dip. Let’s see who comes out on top.
The last thing we can look at is the volume chart. Here you will see the cumulative turnover during the dump. Surprisingly, there is significant turnover for both USDC and FDUSD, but the strength of ADA’s turnover is particularly shocking.