Preface

The cryptocurrency market experienced a significant downturn on Monday, leading to over $500 million in long liquidations. This comes after bitcoin's withdrawal from its weekend peaks and the market's reaction to easing U.S.-China trade tensions. The market decline highlights the volatile nature of cryptocurrencies, impacting various altcoins and altering trader sentiment.

Lazy bag

Over $500 million in long positions were liquidated as bitcoin (BTC) plummeted. Dogecoin and Cardano slid 7%, reflecting crypto's volatile environment.

Main Body

The cryptocurrency market witnessed a stark reversal late Monday, bringing an end to recent gains. Bitcoin's (BTC) decline from its weekend highs led to significant sell-offs, with traders responding to signs of diminishing tensions between the U.S. and China regarding trade policies. According to data from Coinglass, over $530 million in long positions across various cryptocurrencies were liquidated within 24 hours. Bitcoin futures were the hardest hit, accounting for nearly $200 million of these liquidations, followed by ether (ETH) with $170 million.

Liquidation in the crypto market occurs when trades are forcibly closed due to insufficient margin, particularly when the trader lacks the finances to maintain a leveraged position. Major cryptocurrencies such as dogecoin (DOGE) and cardano (ADA) saw declines up to 7%, while solana (SOL), xrp (XRP), and BNB Chain’s BNB fell between 5% and 6%.

The market shake-up is a stark contrast to a euphoric rally of the previous week, which witnessed ETH surging by 40% along with double-digit gains for major altcoins, driven by short squeezes. This had initially resulted in over $1 billion in short liquidations, sending bitcoin momentarily above $104,000 before the momentum waned.

The shift in sentiments followed reports of a temporary trade truce between the U.S. and China, including the removal of mutual tariffs and a promise of renewed cooperation. While this truce supported equity markets, it appeared to contain the risk-on sentiment that previously propelled the crypto market.

In addition to the liquidations, Coinglass data indicated a drop in futures open interest by over $1.2 billion, suggesting a significant deleveraging as long traders were compelled to close their positions.

Market analysts suggest that while this recent downturn might purge excessive optimism, upcoming events, such as the Federal Reserve's next meeting in June, will play a crucial role in Bitcoin's future trajectory. Jeff Mei, COO at BTSE, emphasized the importance of macroeconomic conditions in steering markets, particularly highlighting how a supportive Fed decision might invigorate economic lending and investment, potentially mitigating recession concerns.

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