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Bitcoin dips below $43k, triggers wide selloff

By Robert Davis

17:41, 6 January 2022

Bitcoins on modern tablet screen that shows red price graph
Bitcoin dips below $43k, triggers wide selloff – Photo: Shutterstock

Bitcoin dropped below $43,000 per unit on Thursday, triggering a broader selloff in the cryptocurrency markets.

At 17:00 UTC, popular assets like ethereum, polkadot, and solana had all lost more than 10% of their value while stablecoins proved to be the lone winners of the last 24 hours.

Bitcoin was trading at $42,991 per unit while ethereum slumped to $3,426 on the day.

The selloff erased more than $2bn (£1.48bn) from the total crypto market capitalisation, causing it to reach a three-month low of $2trn, according to data from CoinMarketCap.

FOMC meeting

One reason for the broad sell-off is that minutes from the December meeting of US Federal Reserve’s policymaking body, the Federal Open Markets Committee (FOMC), suggested the central bank will begin drawing down its more than $8.3trn balance sheet in 2022.

Over the past year, the Fed has pumped more than $4trn into the US economy in Covid-19 stimulus spending. This policy was a boon for cryptocurrencies because it increased inflation, which generally correlates with crypto price increases.

The news also spurred a steady increase in Treasury bond yields, which often depresses investor appetite for risky assets.

On Thursday, the 10 Year Treasury benchmark climbed to 1.71%, the highest it’s been since April 2021.

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Open interest climbs

Despite the selloff, open interest in bitcoin and ethereum remains solid, according to Joo Kian, an analyst at Delphi Digital.

BTC/USD

67,541.00 Price
-0.340% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

ETH/USD

3,501.51 Price
0.000% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

DOGE/USD

0.14 Price
-1.490% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

XRP/USD

0.62 Price
+2.900% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

Open interest measures the total number of open futures contracts for a particular asset. It is often used as an indicator of the strength behind a particular price trend.

Bitcoin’s open interest rate has recovered slightly from its peak measured in November 2021. However, this has “coincided with further price weakness for [Bitcoin]” because traders are opening more long positions for Bitcoin than short ones, Kian said in a note to investors.

Funding rates

Kian added that investors are opting to take long positions because of the recent decrease in funding rates for both ethereum and bitcoin.

Historically, funding rates have positively correlated with investor sentiment for cryptocurrencies because they determine periodic payments to traders based on the difference between perpetual market contracts and spot prices.

Investors are generally bullish when funding rates are high, Kian said. But many short-term investors are finding themselves in a tough position after the recent market downturn.

According to data from Glassnode, only 11% of spot Bitcoin traders are making a profit while 87% of long traders are in the green.

“This has been devastating for BTC investors and may partly be due to funds closing positions to take year-end profits,” Kian said.

At the same time, ethereum’s funding rates have dropped to near 0%, implying that investors are uncertain of how the market will move in the near term,” Kian said.

Read more: Crypto markets tumble as Fed considers paring balance sheet

Markets in this article

BTC/USD
Bitcoin / USD
67541.00 USD
-228.5 -0.340%
ETH/USD
Ethereum / USD
3501.51 USD
-0.13 0.000%

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The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
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