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Why is crypto down today? – Forbes Advisor
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Cryptocurrencies saw huge losses on Thursday, with Bitcoin falling more than 9% on the day. Many cryptocurrency traders are already calling this sudden drop a flash crash. The exact reasons for this sharp decline are unclear, and various theories are currently circulating regarding the causes of this decline.
The losses began Thursday morning, as traders began liquidating crypto derivatives contracts in anticipation of the upcoming monthly options expiration period at the end of the week. The prices of Bitcoin and other cryptocurrencies have gradually declined in recent weeks, putting pressure on futures and options markets.
Later in the afternoon, the Wall Street Journal published “preliminary” information on SpaceX’s first quarter results. SpaceX, a space rocket launch company founded by Tesla’s Elon Musk, is a dominant player in the space launch industry.
Among other details, the report stated that SpaceX wrote down its Bitcoin holdings during the quarter and subsequently sold them.
The crypto crash may have started with derivatives
Crypto fell into the red Thursday morning as derivatives traders began liquidating hundreds of millions of dollars in options and futures contracts.
Liquidation derivative contracts like futures and options, typically follows a prolonged decline in asset prices. This has been especially true for cryptocurrencies this week, following the steady decline in prices of Bitcoin and other digital currencies in August.
Until today, cryptocurrency prices experienced a very controlled decline. Every day, slight price reductions were seen, without any immediate and dramatic changes occurring in a single session. But the steady declines have eroded spot prices, causing BTC to fall more than 7% for August so far.
As prices continue to fall, significant volume from August Bitcoin Options Contracts expire out of the money this week – a term indicating that an options contract has expired without generating a profit.
The expiration of out-of-the-money options triggered the liquidation of Bitcoin futures. This has generated a feedback loop in which cryptocurrency prices fall, options expire unprofitably, and futures contracts liquidate, thereby intensifying downward pressure on prices.
Why did crypto struggle in August?
Less crypto news this summer has played a role in the price decline.
Following the announcement in June that the investment giant BlackRock filed for Bitcoin spot ETFdesigned to reflect the real price of Bitcoin rather than relying solely on futures contracts, it initially appeared that the crypto was poised for a prosperous summer.
This does not happen. Newsflow powers crypto trading, and less news means reduced trading volumes and lower prices. In thinly traded markets, liquidity has declined.
Let’s get back to these out-of-the-course options. Monthly options are set to expire at the end of this week – a phenomenon known as “options expiration.” Faced with their lack of profitability, traders chose to sell futures contracts to compensate for their losses.
Although options and futures are often confused, they are different instruments. Options offer traders the ability to buy or sell an asset at a specific price and time, while futures contracts require the holder to buy the asset at a predetermined price and on a specific date.
Both categories of positions can be closed before their expiration date, and this is precisely what happened with Bitcoin futures over the past 24 hours.
Coinbase to list Bitcoin futures
In other news, crypto exchange Coinbase has been authorized to launch Bitcoin futures trading on its platform.
This marks a significant milestone, positioning Coinbase as the first US cryptocurrency exchange capable of providing investors with fully regulated cryptocurrency futures, complementing the existing spot trading activities on the platform.
Shares of COIN rose about 4% following the news.
This development is causing some excitement among cryptocurrency enthusiasts.
THE Commodity Futures Trading Commission authorized Cboe Global Markets to offer Bitcoin futures contracts in June 2022. Prior to that, only collateralized contracts for Bitcoin and Ether were accessible through Cboe Digital.
This limitation meant that investors were unable to use leverage – borrowed funds – to trade Bitcoin or Ether futures on an accredited exchange. However, last June’s favorable ruling for Cboe transformed markets, making today’s price action possible.