Recent events in global markets have sparked a chain reaction of sell-offs, which initially impacted precious metals like gold and silver and subsequently affected the cryptocurrency sector. The tumult resulted in value losses nearing 10% within a single day for precious metals, significantly dwindling multi-trillion-dollar positions. Risky assets, notably including cryptocurrencies such as Bitcoin, experienced dramatic downturns, severely impacting investors operating with high leverage.
Dramatic Decline in Gold and Silver
Within a day, gold prices plummeted from $5,625 per ounce to approximately $5,100 per ounce, while silver dropped from over $121 to the $106 range. This movement erased about $3.4 trillion in theoretical market value. The retracement was mainly attributed to intense profit-taking rather than geopolitical risks or monetary policy changes.
Over the past year, gold saw an increase of about 90%, while silver rose over 270%, resulting in substantial accumulated gains. The rising prices were propelled by central bank purchases, geopolitical tensions, and industrial demand, with the use of excessive leverage in futures trading standing out throughout the uptrend. Positions leveraged up to 50 times led to forced liquidations during the initial pullback.
As liquidations commenced, the pace of selling accelerated, transforming the downward momentum into a self-reinforcing cycle. The rapid emergence of steep price gaps highlighted the market’s underlying fragility.
Implications for the Cryptocurrency Market
The disintegration in precious metals imposed noticeable pressure on the cryptocurrency market. Bitcoin, for instance, fell from $89,000 to below $82,000, marking a depreciation of approximately 7%. Major altcoins, including Ethereum, XRP, BNB, Solana, and Cardano, also suffered declines ranging between 6% and 10%.
According to CoinGlass, the past 24 hours saw $1.68 billion in liquidations within the cryptocurrency market. Approximately 267,000 investors lost their positions, with long positions accounting for 93% of the liquidations.
On the same day, there was an 817 million dollar net outflow from Bitcoin ETFs. Withdrawals from ETFs led by BlackRock, Fidelity, and Grayscale continued for eight consecutive days, with only a limited inflow observed on January 26. Simultaneously, sharp sell-offs in US equities were evident, with double-digit declines in Microsoft shares contributing to value losses amounting to hundreds of billions of dollars in indices.
