BitMex founder Arthur Hayes said the Bitcoin and Ethereum could be primed for severe losses if they dropped below a certain level.
For Bitcoin, Hayes sees a drop below $20,000 causing a spot-selling cascade. He sees a similar scenario playing out for Ethereum if it falls below $1,000. Hayes says that open interest and positioning in the options market is driving his prediction.
Bitcoin is currently trading around $22,000, while Ethereum is just above $1,200. Both tokens have capitulated heavily in the past 24 hours, and likely face further weakness.
Concerns over a Federal Reserve rate hike this week, rising inflation and potential chaos in the options market have driven the recent crypto rout.
Why are $20K and $1K crucial for Bitcoin and Ethereum?
In a Twitter thread, Hayes said that if Bitcoin and Ethereum were to breach the levels, it would place “massive sell pressure” in the spot markets, due to dealers having to post more collateral to maintain their positions.
But the ones that won’t be able to successfully cover their positions will be forced to sell, creating even more sell-side pressure on the two tokens.
Hayes warned that breaking below the levels could cause an unprecedented amount of selling in the market.
As far as the charts go, you better get out your Lord Satoshi prayer book, and hope the lord shows kindness on the soul of the #crypto markets. Bc if these levels break, you might as well shut down your computer bc your charts will be useless for a while.
Liquidation risks aplenty
With the recent, sharp drop in Bitcoin and Ethereum prices, several major position holders are at risk of being liquidated. The most prolific of these is embattled lender Celsius, which faces a $522 million liquidation of its Bitcoin position.
Michael Saylor’s MicroStrategy also faces a similar position, although its liquidation could be in the billions. While Saylor said that Bitcoin prices would need to hit around $3000 for such a scenario, critics argue that the actual price may be higher.
Any such major liquidation would cause a sharp decline in crypto prices.
MicroStrategy, which has the highest Bitcoin holdings among any publicly listed firm, is currently holding the token at a near $1 billion unrealized loss.
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