Commenting on Bitcoin’s recent mass-liquidation, Hina Sattar Joshi, Director at TP ICAP, Digital Assets, said: “Volatility has not been limited to equity markets – economic uncertainty and the recent tech sector sell-offs have had a direct and immediate impact on the price of Bitcoin. After the summer’s exuberance, this month, the cryptocurrency experienced a $19 billion liquidation and continued the most sustained declines in price since Donald Trump’s inauguration.
“While in the longer term, volatility may be temporary and digital asset markets stand to benefit from a more supportive regulatory environment, in the short term, there are three factors that institutions trading digital assets should be monitoring.
“First, are the potential pitfalls presented by market structure. Bitcoin’s recent mass-liquidation underscores the risk of keeping assets on-exchange and the dangers of auto-liquidation mechanisms. This event has highlighted the importance of infrastructure that separates custody and execution.
“Second, Digital Asset Treasury Companies (DATCs), which currently hold around 4% of all Bitcoin and 3.1% of all Ether, are displaying signs of weakness and adding to market stress. When DATCs’ holdings trade below net asset value, leverage and credit tightness can lead to a sell-off, straining liquidity on exchanges.
“Third, the politicisation of cryptocurrencies. As political parties around the world adopt cryptocurrencies as an economic and political tool – whether creating Bitcoin reserves or encouraging the adoption of cryptocurrencies in other ways – political engagement increasingly has the potential to impact price action.
“Some of these issues are related to the rapid rise of cryptocurrencies, from a niche interest to a mainstream asset class. While the current market is characterised by reduced leverage and less speculative movement, when uncertainty clears, we expect activity to be reignited by clearer regulation, fresh capital inflows, and renewed investor confidence.”
