Crypto Market Pulls Back, Billions in Long Positions Face Liquidation Risk → Markets

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Briefing

The cryptocurrency market is experiencing a significant pullback, with major assets like Bitcoin and Ethereum seeing notable price declines. This downturn follows an initial rally spurred by the US Federal Reserve’s recent interest rate cut, indicating that early optimism has given way to profit-taking and increased selling pressure. Over the past four hours alone, Bitcoin liquidations totaled approximately US$13.71 million, predominantly from long positions, signaling a shift in market momentum.

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Context

Before this recent dip, many investors were wondering if the market could sustain its upward trajectory, especially after the US Federal Reserve’s interest rate cut on Wednesday, September 17. This monetary easing had initially bolstered investor confidence, leading to a “risk-on” rally across crypto assets and pushing Bitcoin briefly above the US$117,000 level.

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Analysis

The current market downturn is a classic example of profit-taking and the cascading effect of liquidations in a highly leveraged market. After the initial surge from the Fed’s rate cut, some investors likely decided to secure their gains, leading to selling pressure. This selling triggered the liquidation of leveraged long positions → bets that prices would continue to rise. When a leveraged position loses too much value, it is automatically closed to prevent further losses, forcing more selling onto the market.

Think of it like a row of dominoes → one sale triggers another, creating a downward spiral. This dynamic is evident in the US$13.71 million in Bitcoin and US$10.85 million in Ethereum long liquidations observed in just four hours.

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Parameters

Bitcoin 24-Hour Price Change → US$115,191, a 1.9% decrease. This reflects the recent selling pressure.
Bitcoin Liquidations (4 hours) → Approximately US$13.71 million. This amount primarily came from long positions, indicating forced selling.
Ethereum 24-Hour Price Change → US$4,445.54, a 3.2% decrease. Ethereum followed Bitcoin’s downward trend.
Key Liquidation Threshold → A fall below US$114,000 for Bitcoin could trigger US$1.002 billion in long position liquidations. This highlights a critical support level.

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Outlook

For the next few days, market watchers should closely monitor Bitcoin’s price action around the US$114,000 level. If Bitcoin breaks below this point, it could trigger a substantial wave of long liquidations, potentially leading to further price declines. Conversely, reclaiming and holding above US$116,000 could signal a stabilization or even a potential reversal of the current bearish momentum. The overall derivatives market, with Bitcoin futures open interest surpassing US$220 billion, remains a key indicator for potential sharp swings.

The crypto market is currently navigating a period of profit-taking and liquidation cascades, making key support levels critical for preventing further significant price drops.

Signal Acquired from → investingnews.com