Crypto Liquidations: Bitcoin and Ether Stumble Amid Fading ETF Momentum

On Tuesday, the cryptocurrency market experienced a significant downturn, marking the most substantial daily liquidation of leveraged long positions in the past three months, according to data from CoinGlass. This decline was instigated by a reversal in momentum that had been fueled by optimism surrounding ETFs, leading to notable drops across various digital assets and resulting in liquidations exceeding $307 million for leveraged crypto long positions within a 24-hour period. This marked the most extensive liquidation of long positions in a single day since August 17, aligning with Bitcoin's significant decline from above $28,000 to about $25,000.

The downturn unfolded as Bitcoin faced a 4% decrease, dropping to $35,000, despite an overall positive sentiment in risk assets following an October inflation reading that fell below expectations. This negative impact extended to the broader crypto market, with Ethereum (ETH) experiencing a 6% decline, slipping below the $2,000 mark.

This recent market activity stands in contrast to the trends observed in preceding weeks, characterized by notable "short squeezes" resulting from surging asset prices, prompting the liquidation of leveraged bets anticipating lower prices.

Liquidations occur when exchanges are forced to close leveraged trading positions due to the partial or total loss of a trader's margin. The cascade effect of these liquidations can intensify price volatility as traders offset their positions, eliminating excessive leverage from the market.

The substantial volume of liquidations indicates that the abrupt price decline caught the majority of investors off-guard, leading to the flushing out of 88,667 traders, according to CoinGlass data. Bitcoin traders bore the brunt of the liquidations, totaling $133 million, followed by ETH traders with losses totaling around $70 million.

In a report from the previous week, JPMorgan analysts expressed the view that the recent rally in cryptocurrency prices was showing signs of being "overdone." They highlighted that investors had become overly optimistic about the potential impact of the approval of a spot BTC exchange-traded fund on asset prices.

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