The recent turmoil in the Middle East, particularly escalating tensions between Iran and Israel, has triggered a massive cryptocurrency sell-off totalling $860 million.
Geopolitical instability historically prompts investors to flee from volatile assets like cryptocurrencies, seeking refuge in safer investment options.
This flight to safety results in widespread sell-offs across various risk asset classes, mirroring the recent downturn in the crypto market.
Over the past 24 hours, the liquidation wave affected a staggering 261,054 traders as the overall market cap of cryptocurrencies plummeted by nearly 5%.
QCP Capital, a prominent player in the crypto space, highlighted the role of the ETH risk reversal indicator in exacerbating the liquidation.
This indicator, which measures the market’s sentiment towards Ethereum, displayed a significant downside skew, indicating a prevailing expectation of a price decline.
The bearish sentiment towards ETH likely stemmed from its frequent use as a hedge, with traders betting on its value dropping.
As anticipated by the indicator, Ethereum’s price tumbled by over 5% to $3100.
Notably, speculators holding long positions in alternative coins often utilize ETH puts to shield themselves against market downturns, rendering Ethereum particularly susceptible to shifts in sentiment.
The pervasive fear gripping the crypto markets was further highlighted by the dramatic swing in perpetual swap funding rates, plummeting to over -40%.
This drastic decline marked the steepest negative funding rates observed this year, serving as a clear signal of strong bearish sentiment prevailing in the market.
Moreover, this anxiety-induced sell-off exerted immense pressure on the forward curve, with the front end dropping below 10%, painting a gloomy short-term outlook for cryptocurrency prices.