BTC Loses $8K in a Week as Three Major Risks Emerge

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When BTC heads south as violently as it did over the past week or so, analysts are trying to determine what caused the calamity and what’s next.

On the surface, there are always some evident reasons, such as the building macro pressure, uncertainty after the midterm elections for crypto, and the Bitcoin ETF outflows, which neared $1.3 billion last week alone, and have continued as the new week began.

But we will focus on more unexpected factors in this article that could be behind this major leg down. Those that remain behind the scenes.

Liquidity and Longs
The first factor came from stablecoins, which have helped finance virtually every major crypto rally this cycle. CryptoQuant, though, highlighted that USDT supply has contracted sharply, with its market cap falling by around $6.6 billion in the past couple of months. Its recent research pointed out that this decline is more than twice the one seen in December 2022 after the collapse of FTX.

Since stablecoins effectively represent deployable dollar liquidity inside crypto, the shrinking supply means that one important source of marginal demand disappears.

Joao Wednes referred to his Long & Short Liquidation Exposure Within ±10% metric, which showed approximately $580 million of longs exposed to liquidation versus less than $150 million of shorts if BTC moves 10% in either direction. He argued that such an imbalance creates significantly more downside liquidation fuel than upside short-squeeze fuel.

The results can be quite devastating, as falling prices liquidate leveraged longs, force traders to close positions and create additional selling, while the next layer of leveraged positions comes under pressure.

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