Crypto Plunges As Dollar Rises, Merge Hype Cools
$608M Of Leveraged Crypto Positions Have Been Liquidated
By: Aleksandar Gilbert •Markets
Crypto markets plunged early Friday, erasing a two-week bull run that briefly saw Ether trade over $2,000.
Ether is trading at $1,700 at noon New York time Friday, 9% lower than 24 hours earlier, according to data from The Defiant’s newly released charting tool. Binance, Ripple, Cardano and Solana have all posted similar drops.
ETH Price. Source: The Defiant Terminal
“Equities, crypto, and bonds are all down,” crypto trading firm GSR wrote in its daily market brief, but crypto was “the standout loser.”
After a month-long surge in crypto prices, “a pullback has been a little bit due,” Karl Straky, a quantitative trader at crypto market maker Kairon Labs, told The Defiant. “I think the spark that ignited it was the strengthening [U.S.] Dollar.”
There have been signs inflation may be slowing in the U.S. while picking up steam elsewhere, Straky said. As other currencies lose purchasing power faster than the dollar, their value relative to the dollar declines as well. That has pushed the U.S. Dollar to a five-week high on Friday, according to data from TradingView.
US Dollar Index
“The strength in the dollar really puts pressure on stocks,” Straky said, “because it doesn’t incentivize people to take risks and to put their money into equities, it incentivizes them to save their dollars.”
As of Friday morning, more than $608M in leveraged crypto positions have been liquidated over the preceding 24 hours, according to data from coinglass.com. That likely pushed crypto prices much lower than they would have gone otherwise, Straky said.
“I suspect if those liquidations didn’t happen, [the drop] would probably be closer to 2 or 3 or 4%,” he said.
Cooling hype over Ethereum’s coming transition to an ESG-friendly proof-of-stake technology – estimated to slash the network’s energy use by more than 99% – may have also contributed to the selloff, market observers say.
Large traders who profited off Ether’s 100% increase over the past month and a half might have sold to retail buyers piling in after hearing about the late-summer bull market, Will Sheehan, founder of crypto data platform Parsec Finance, told The Defiant.
“It’s partially a realization that there’s still a month to the Merge,” he said, referring to Ethereum’s transition to proof-of-stake, currently scheduled for Sept. 15. “It’s still very unclear how the Merge plays out from a price perspective.”
“I think [Ether’s] 100% move and the hype around the Merge has driven a little too much exuberance into the market, short term at least,” he said. “And although the ETH merge narrative is strong, there are still a lot of unknowns with that and the broader macro picture will outweigh the ETH merge hype in the short term.”