Note that the cryptocurrency situation today is still much worse than it was last week. Specifically, over the past seven days, BTC is down 12 percent, while Etherium is down 19 percent. Solana (SOL) was the top ten cryptocurrency by market capitalisation, losing almost 23 per cent.

Changes in the rates of the top cryptocurrencies over the past week

What’s happening with Bitcoin futures

According to Cointelegraph’s sources, futures contracts typically trade at a small premium over regular spot trades at market prices, as a contango situation occurs – a premium in price charged by the seller for delaying settlement of the transaction. The spread between the spot price and the futures price is a good indicator of the prevailing weight of open positions on the long or short side, i.e. positions to buy or sell the asset respectively.

Futures premium relative to the Bitcoin spot price

As seen in the chart above, the trading of three-month Bitcoin futures has shifted from a contango to a so-called backwardation: this is a situation in which the value of the contracts has even fallen below the spot price of the cryptocurrency after its precipitous drop on August 19. This suggests that there are now more buyers willing to short Bitcoin, which means that its price could fall sharply again, as market participants have a vested interest in it and are acting accordingly.

Half a billion dollars worth of positions being liquidated

Bitcoin futures contracts gained widespread popularity back in 2016 on the BitMEX exchange, which allowed leveraged BTC positions to be opened. This is the principle of margin trading, in which a trader can use their deposit as collateral to borrow funds from the exchange in order to increase their potential profit from the transaction.

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The danger of margin trading lies in the risk of liquidation, a situation in which the trader’s deposit becomes insufficient to cover his positions. In such cases, the exchange’s automatic deleveraging mechanism is triggered, which sells the cryptocurrency used as collateral to reduce the risk. In other words, liquidation results in the total loss of all funds used to secure the position.

Volumes of position liquidations in trading

A trader can increase his profit tenfold by using 10x leverage, but if in this situation the asset falls by 9 per cent from the entry point, the position will be closed. If the price moves too fast, a large volume of positions may get liquidated, which only accelerates the collapse or growth of BTC. As you can see from the screenshot above, the volume of such liquidations during August 19 was approximately $470 million – which is an additional reason for a collapse, as liquidated positions are sold off at market prices.

What’s next for cryptocurrencies

The Fear and Greed Index from Alternative has returned to the panic zone for traders as the cryptocurrency market has fallen. Today, it recorded 29 points out of 100, although a week ago it reached 45 points out of 100. When most market players are panicked, the short-term behaviour of the Bitcoin price can be unpredictable, with such periods being the best opportunities for asset accumulation.

Current Bitcoin Investor Fear and Greed Index

The day before, such a message was voiced on his Twitter account by the former CEO of the already mentioned BitMEX crypto exchange, Arthur Hayes. Here is one of his quotes.

The price dynamics in the short term look terrible. If you’ve been opening long positions recently, then you’ve misread the market. So what should you do now, close positions, wait or buy some more? It all depends on your stamina and how well you can read the charts.

Former BitMEX CEO Arthur Hayes

One of Hayes’ main questions to his Twitter followers is whether their perception of the market in terms of fundamentals has changed? For example, Arthur himself has so far been confident in his investments in Etherium. The altcoin’s transition to the Proof-of-Stake algorithm due to the so-called merger is due to take place in September, and so far nothing is preventing this event. By that logic, Hayes is not selling ETH, even despite the recent market crash.

What’s more, he advised paying attention to Etherium’s prospects amid the merger – perhaps right now is the best time to make additional investments in ETH, the trader believes. Here’s Hayes’ quote from his blog post.

If the merger is successful, traders will start buying ETH, knowing that the higher its price goes, the more popular the altcoin network, the more it will deflate. And that will lead to additional price increases in such a vicious cycle.


As a reminder, the rate of inflation in the Etherium network on a Proof of Ownership or PoS basis will be much lower. This means that new ETH in the blockchain will form noticeably less, so the cryptocurrency will become rarer compared to the current situation.


Graph of the Etherium exchange rate over the last six months


We think Arthur's view sounds logical, and a successful merger will have a positive effect on the entire Etherium ecosystem. The altcoin's move to a new consensus algorithm will also mean that new upgrades to the ETH protocol are coming, which will make it much more productive in terms of transaction processing speed and lower fees going forward. However, current conditions in the global economy are extremely challenging, so even an obvious positive development in the cryptocurrency industry could end in an unpredictable way. Therefore, even the version of such an experienced trader as Hayes should be perceived as just one of the possible scenarios.


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