The cryptocurrency market experienced severe fluctuations, with a total liquidation amount of $143 million across the network within 24 hours, of which $106 million was from short position liquidations, accounting for 74% of the total, while long position liquidations amounted to $37.0985 million. Ethereum (ETH) and Bitcoin (BTC) ranked first and second on the liquidation list, recording liquidation amounts of $32.41 million and $13.55 million, respectively, highlighting the market's extreme sensitivity to price volatility of major assets.
Short positions dominate, putting pressure on market sentiment.
On August 2, Bitcoin's price briefly fell below $110,000, reaching a two-week low, before rebounding to $119,000, with a volatility of over 6% within 24 hours. Ethereum's price fell from $3,634 to $3,517; this liquidation is closely related to recent market fluctuations. The high proportion of short position liquidations indicates that many investors bet on further price declines, but the market's rapid rebound led to the liquidation of high-leverage short positions.
Market turbulence triggered by the Federal Reserve's hawkish stance and non-farm data.
The Federal Reserve's July 31 decision is the macro catalyst for this liquidation. The Federal Open Market Committee (FOMC) voted 10-2 to maintain the interest rate at 4.25%-4.50%, with Vice Chair Bowman and Governor Waller casting dissenting votes advocating for a 25 basis point cut. Chairman Powell demonstrated a hawkish stance at the press conference, emphasizing the resilience of the labor market and inflation risks, stating that the decision on a rate cut in September would need to wait for the August and September data. This statement caused the US Dollar Index (DXY) to rise to 100, putting pressure on risk assets.
The non-farm employment data for July, released on August 1, further exacerbated market volatility. Actual new jobs were 73,000, below the market expectation of 110,000; the unemployment rate rose to 4.2%, in line with expectations. Although the data did not significantly deviate from expectations, concerns about a slowdown in the labor market still heightened rate cut expectations; as of the time of writing, the probability of a 25 basis point rate cut in September has risen to 80.5%.
Asset dynamics behind the liquidation
ETH: The $32.26 million liquidation amount for Ethereum reflects its high volatility and active high-leverage trading. On August 2, Ethereum's price fluctuated in the range of $3,500 to $3,600, with a 24-hour trading volume reaching $18 billion. On-chain data shows that Ethereum whale addresses accumulated about 12,000 ETH (approximately $45 million) during the downturn, indicating institutional investors are buying the dip. However, high-leverage derivatives trading (with perpetual contract leverage as high as 50 times) led to concentrated liquidations of short positions, especially on Binance and Bybit. Recently, Ethereum has been supported by the RWA (Real World Asset tokenization) sector, which rose by 3.69% on August 3, but macro pressures limited its upward space.
BTC: Bitcoin liquidation amounted to $13.53 million, which, while lower than Ethereum's, is still significant. After dropping below $110,000, the price quickly rebounded, triggering short position liquidations. On-chain analysis shows a decline in Bitcoin OTC balances, with whales actively buying, indicating institutional confidence in long-term value. However, the Federal Reserve's hawkish decision and a stronger dollar have weakened short-term upward momentum. The market predicts that if Bitcoin breaks below the $110,000 support, it may further test $105,000.
Macroeconomic and on-chain signals intertwine
This liquidation event was driven by multiple factors:
1. Federal Reserve's hawkish stance: Powell's 'data-driven' remarks and the uncertainty of a rate cut in September have increased market volatility. High-leverage traders failed to adjust their positions in a timely manner during the rapid price rebound, leading to large-scale liquidations.
2. Non-farm data expectations: The moderate performance of July's non-farm data (110,000 new jobs, 4.2% unemployment rate) did not trigger recession fears, but concerns about labor market slowdown still heightened volatility.
3. Trump's tariff policy: Powell mentioned that tariffs might bring about a 'one-time price shock,' exacerbating market speculation in the derivatives market due to increased divergence in inflation expectations.
4. On-chain dynamics: High-leverage derivatives trading is the main cause of the liquidation. Data shows that on August 2, the total open contract volume in the crypto market reached $60 billion, with an average leverage ratio of 20 times, and some perpetual contracts as high as 50 times. A rapid price rebound triggered forced liquidations, with significant losses for short positions.
Market outlook and investment strategy
Short-term risks:
Volatility remains high: The inflation and employment data for August and September will determine the direction of the Federal Reserve's September decision. If the data shows a rebound in inflation or strong employment, Bitcoin and Ethereum may come under further pressure, testing support levels of $110,000 and $3,500.
Liquidity risk: The depth liquidity for Ethereum and Bitcoin stands at $120 million and $200 million, respectively, lower than that of the stock market, which may amplify price volatility.
Regulatory pressure: The US SEC's tightening regulation of the crypto derivatives market may limit high-leverage trading and impact market activity.
Investment opportunities:
RWA sector potential: Ethereum benefits from the RWA boom, with projects like Maker (MKR) likely to continue leading, making them suitable for long-term investment.
Data-driven strategy: If the CPI announced on the evening of August 12 shows a decline in inflation, the likelihood of a rate cut in September may continue to rise, which would be favorable for crypto assets.
This article is for information sharing only and does not constitute investment advice to anyone.
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