Liquidation cascade puts crypto market into shock: Report

Venture capital inflows decreased 42.7% as derivatives saw one of the largest liquidation events in crypto.

August was the worst month for the crypto markets since Bitcoin (BTC) bottomed out in November 2022. What was initially perceived by many as merely a summer slump turned into a pronounced market downturn as liquidations cascaded on the derivatives market, erasing 7.3% of BTC’s and 6.9% of Ether’s (ETH) value. Grayscale’s court victory was only a temporary reprieve from these losses, as the price retraced back to the levels starting out the month. This caused one of the largest liquidation events in crypto, totaling more than $1 billion lost when the price dropped to $26,000. 

To further kick the industry when it was down, venture capital (VC) investment inflows were down 42.7% in August from July, only bringing in $401.9 million across 77 deals. Investment in the crypto industry was on the rise up until May of this year but has been steadily declining since.

The report is available for free on the Cointelegraph Research Terminal.

Exploring how the various sectors of the digital asset space have performed in this environment, Cointelegraph Research’s “Investor Insights Report” offers a concise monthly round-up of everything going on in crypto. It dives into venture capital, derivatives, decentralized finance (DeFi), regulation, mining and much more.

Venture capital takes a step back

Venture capital (VC) investment in the blockchain industry has been declining since the second quarter of 2022 but has hit a new local low in 2023 with $401 million. Infrastructure projects had 18 individual deals and brought in $107 million in August, followed by centralized finance (CeFi) with $100 million only over three deals. Investments in this sector are lagging indicators, suggesting that investments will come back when the overall market sentiment shifts positive.

However, like Tim Draper said in a Cointelegraph Research interview, “Investors always get it wrong,” suggesting that investing during the downtime is the best time to find quality projects to hold till the bull market is back.

Derivatives drive BTC negative sentiment

Aug. 25 was the expiry of $1.9 billion in monthly Bitcoin options, which caused major speculation in the markets. BTC’s price did not see a dramatic change during this time; however, the markets were excited upon hearing the news of the SEC’s loss in a court ruling against Grayscale, paving the way for a spot Bitcoin ETF in the future. The price jump to $28,000 was short-lived and retraced back to the $26,000 level. While the pump did not sustain in the short term, the silver lining is that the $26,000 range is showing signs of market support.

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With decades of combined experience in traditional finance, business, engineering, technology and research, the Cointelegraph Research team is perfectly positioned to put its combined talents to proper use with the latest Investor Insights Report.

The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.