Expert issues warning about potential market crash
McAulay cautioned that traders might be underestimating the likelihood of a significant liquidation event happening within the next three months or during 2025, according to the report. Despite Bitcoin exhibiting low volatility lately, leverage within the market is quietly increasing, potentially paving the way for a steep price decline, The Street noted.
As highlighted by The Street, she compared the current market scenario to that of March 2020, when Bitcoin futures plummeted by 85% in a single day, leading to one of the largest liquidation events in crypto history. During that crash, Bitcoin’s market capitalization fell by close to $40 billion, dropping to about $107 billion, as reported by CoinMarketCap.
Are traders over-leveraging?
McAulay pointed out that many Bitcoin traders are employing leverage ratios of 6x or 7x, relying on the belief that Bitcoin’s price will remain stable, as stated in the report. However, she warned that even a slight 20% decrease in price could prompt a “cascade of liquidations,” resulting in massive sell-offs and potentially spiraling down into a market collapse, according to The Street.
Compounding this risk, the landscape of crypto lending has changed drastically since 2022. Unlike previously, when leverage was more dispersed off-exchange, a larger portion of leverage is now centralized on exchanges, as reported by The Street. This concentration means that if a price drop occurs, the liquidation process might be significantly quicker and more intense.
Is Bitcoin already experiencing a bear market?
McAulay also indicated that Bitcoin might already be in the early phases of a bear market, although many investors remain unaware, as per The Street. She elaborated that it often takes a few months of declining prices before a market is officially termed a bear market. One concerning indicator she noted is the sharp decrease in trading volumes, which have dropped by 40% since December. While Bitcoin ETFs continue to draw institutional interest, retail engagement has diminished, leading to fewer new investments, according to The Street. McAulay warned, “If there’s a drop in those inflows, if they pause, if anything unsettles them, and you combine that with the selling activities we’re already witnessing, it could result in a significant crash,” as quoted by The Street.
As of February 20, Bitcoin was trading at $96,289.79, reflecting a decline of 0.7%.
FAQs
Should I be concerned about Bitcoin?
Crypto expert Tara McAulay has highlighted concerns that Bitcoin may be on the brink of a major crash similar to the 2020 event. She noted that many traders are overlooking certain risks, particularly with the increasing leverage in the market.
Is Bitcoin currently in a bear market?
McAulay suggested that we may already be entering the early stages of a bear market, regardless of whether many have noticed. Typically, it takes a few months of declining prices for the market to be officially classified as a bear market.
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