Bitcoin and ether shed billions in market cap during Wednesday morning's trading session as traders sounded the alarms about "bearish sentiment" gripping the market.
At the time of writing, bitcoin was trading in the $30,000s — a decline of more than 20% during the past 24 hours, according to TradingView. Meanwhile, Ether — which was outperforming bitcoin earlier this week — was trading down nearly 40% at $2,126. In terms of liquidations, there's been more than $3.3 billion worth of position liquidations within a single hour during this morning's session.
The recent price action kicked off in full force this past weekend, while billionaire Elon Musk fired off several controversial tweets about bitcoin's energy use.
An executive at a trading firm told The Block on Tuesday evening that dealers were mostly short gamma — trader parlance for selling more to hedge. This can lead to large price swings.
"$40,000 is the level they are looking at where we will cut risk and walk away," the person added. "There is bearish sentiment."
It appears the market has been short gamma for some time, with Asian trading firm QCP Capital noting on May 16 that the market will be "VERY short gamma past 40k."
"We cannot stress enough the importance of holding the 40k on a closing basis in BTC for all of Crypto," the firm said in a May 19 note.
"The BTC enthusiasm has been sucked out last week by the confluence of Elon's corporate ESG stamp of disapproval, the SEC's public un-enthusiasm for any ETF & the CME backwardation. Three strikes on the institutional front and hope for fresh inflows."
Still, participants see a very different market relative to the drawback last March—despite being close to the historic drawdown in terms of percentages.
"Lenders/babel finances of the world were all pretty hedged up, so nothing of the sorts of March 12 2020-like event," he said.
"State of the market is a lot healthier than it was then," the aforementioned trading executive said. "Last year, bearish sentiment was exacerbated by lenders who had to liquidate aggressively because they weren’t positioned right. There’s less of that.”
DeFi is also showing a bit more resiliency compared to last March, according to Richard Rosenblum at GSR Trading.
"While ETH has started to lead the way lower, so far TVL hasnt capitulated," he said in a message. "Many rightfully view Defi as acting as a levered expression of ETH. Yet on this down move so far TVL has been resilient on a relative basis."
Bitcoin is still up more than 30% year-to-date.