The most troubling concerns for risk assets, such as cryptocurrencies, are becoming a reality, increasing the likelihood of Bitcoin (BTC) slipping below $74,000 in a move that could potentially liquidate leveraged long positions.
On Sunday, CoinDesk highlighted the possibility of significant downside volatility in risk assets due to a potential unwinding of Treasury market arbitrage positions, a scenario that also precipitated the 2020 market crash.
Market watchers report that the unwinding of carry trades, where hedge funds capitalize on minor price differences between Treasury futures and securities, has commenced. This is reflected in the U.S. 10-year Treasury yield rising nearly 70 basis points to 4.5%, with the 30-year yield experiencing a similar increase. It’s important to note that yields act inversely to prices, typically falling during periods of risk aversion as investors flock to government bonds.
“We’re currently observing a vertical trend with 30-year Treasury yields nearing the 5% threshold. To provide some context, 10-year yields in the U.S. were as low as 3.88% on Monday. This indicates further liquidation in Treasuries, highlighting distress in segments of the market that typically remain under the radar, such as funding, credit, and repo,” said Justin Low, a ForexLive analyst, in a market update addressing the collapse of the basis trade.
Low further mentioned that things are “stagnant at the moment,” emphasizing that a sharp uptick in yields could have extensive repercussions across markets, the housing sector, and the broader economy.
Stocks decline, BTC remains under pressure
Futures associated with the S&P 500, the benchmark equity index of Wall Street, dropped 2% amid heightened volatility in the Treasury market. Bitcoin briefly dipped below $75,000 earlier today before recovering to around $76,000, according to CoinDesk data.
The MOVE index, which measures the options-implied 30-day price volatility in the Treasury market, surged to 140, marking the highest point since October 2023, as per TradingView.
The deteriorating risk sentiment has escalated the chances of Bitcoin falling to the $73.8K-$74.4K range, where those holding bullish long positions in the perpetual futures on major exchanges face potential liquidation, according to data from analytics firm Hyblock Capital.
Liquidation refers to the mandatory closure of positions by exchanges due to insufficient margin, and significant long liquidations can contribute to increased downside price volatility.
“We identify long liquidation clusters at the levels of $73,800-$74,400, $69,800-$70,000, and $66,100-$67,700. Notably, if we touch $70K, we may likely descend at least $200 more, triggering retail stop losses positioned just below $70K and the liquidation liquidity levels,” Hyblock told CoinDesk.
On the upside, Hyblock has highlighted potential zones for short liquidations at $80,900-$81,000, $85,500-$86,700, and $89,500-$92,600.
