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The Biggest Liquidations Since FTX: What Led to It and What to Keep an Eye On?
Once more, markets witnessed a downturn in the past week. It was seemingly triggered by a combination of factors, including rumors surrounding SpaceX’s potential Bitcoin sale, the Securities and Exchange Commission (SEC) appealing against the July 13 Ripple order, and various other significant macroeconomic events. Bitcoin and Ethereum fell by 11.16% and 9.58%, respectively, over the past week. As seen below, the cryptoassets that suffered the most within the major crypto categories were Uniswap (-23.8%), Stacks (-19%), and Avalanche (-16%), over the past week.
Figure 1: Weekly Price and TVL Developments of Cryptoassets in Major Sectors
Source: 21Shares, CoinGecko, DeFi Llama. Close data as of August 21, 2023.
3 Things to Remember in Markets this Week:
• Biggest On-Chain Liquidations Since FTX
On August 17, the crypto market experienced approximately $1.04B in liquidations. Among these, about $833M were long positions, with multiple factors contributing to the chain reaction of liquidations. Notably, the Fed’s meeting minutes highlighted persistent inflation and revealed the possibility of further interest rate hikes. This was further compounded by higher US long-term bond yields and the hawkish Fed stance, fostering a risk-averse sentiment in the short term. The impact wasn’t just limited to crypto as stocks also suffered last week, which holds especially true as Bitcoin has regained its positive correlation with S&P500 and Nasdaq, implying that the three markets are moving again in tandem.
Moreover, the market downturn was exacerbated by erroneous reports of SpaceX liquidating its Bitcoin holdings. While many on social media speculated about a potential sell-off, it’s important to note that write-downs are a standard accounting practice and do not necessarily imply that the investments have been sold or liquidated. In addition, global markets experienced a mild shock due to news of Evergrande’s bankruptcy filing under US Chapter 15, raising concerns about its implications for the worldwide real estate market. Compounding these factors, the SEC’s ability to appeal specific judgments added to the negative sentiment, which we briefly touch on next. That said, although last week’s events pale in comparison to the gravity of the FTX debacle, Bitcoin’s annualized volatility recently hit its lowest level in over five years, which indicated an anticipated market breakout.
Figure 2: Liquidations Across the Crypto Market (August 17)
Source: Coinglass
• Ripple’s Lawsuit Saga Just Got Longer
On August 18, the SEC filed an interlocutory appeal against the inconclusive summary order in the Ripple case Federal Judge Analisa Torres issued on July 13. The appeal primarily objects to the court’s view that the programmatic sales of XRP (on exchanges) are not considered securities, highlighting a disagreement among district courts regarding the controlling issues. In response, XRP fell by 17.5% over the past week. Ripple has until September 1 to submit a response to the SEC’s appeal. There are no definite dates for the trial yet; Judge Torres suggested that the court would be in session later in the second half of 2024. Until then, we expect XRP to experience speculation-driven volatility while Ripple continues to secure strategic partnerships to enforce its value proposition as a crypto-native software solution for players in traditional finance. In its latest move, Ripple is collaborating with fintech giant MasterCard and ConSensys, among others, to build a central bank digital currency (CBDC) program to support central banks and governments in pursuing a digital currency. The program will explore the design of CBDCs, interoperability, and their limitations.
• Crypto Derivatives About to Receive a Boost in the U.S.
The U.S. is hungry for more regulated crypto products not exclusive to institutions. After a year in the application, Coinbase won regulatory approval to offer crypto futures to its retail clients in the U.S. What kind of impact can this have on the crypto market in the U.S.? According to a recent study, 58.8 million Americans hold crypto, up 18% from the previous year. This move can bring in more American retail investors to trade a product with less exposure to the risks of this asset class. The trading volume of the global crypto derivatives market represents almost 75% of the entire crypto market. The Coinbase Derivatives Exchange has established a deep liquidity pool with $4.7B worth of BTC and $2B worth of ETH futures traded in notional volume in 2023.
What You Should Pay Attention To
• The Debut of Friend.tech and the broader Social-Fi movement
Friend.tech is a new social application on the Base network, allowing users to tokenize shares of their own Twitter accounts, which other users can trade. The share price scales algorithmically with availability. More shares mean higher prices, accompanied by a 10% tax—5% each for the protocol and the Influencer. Purchasing shares enables direct engagement via private chats and exclusive content access and fosters deeper social ties.
Despite initial technical issues, the platform’s arrival is noteworthy. Firstly, friend.tech employs Base’s Account Abstraction tech for streamlined on-chain user interactions. Users sign up with web2 credentials, deposit without wallet setup, and trade shares without paying transaction fees. Leveraging a web app model also bypasses Apple/Google constraints, enabling ease of deployment and access. Secondly, Friend.tech integrates financialization into social networking, reshaping the relationship to offer both financial and social gains and reflecting what is known as Social Finance (SocialFi).
Thirdly, Friend.tech achieved remarkable visibility in the decentralized social space, surpassing incumbents like Lens protocol with substantial funding. In just 10 days, the application facilitated ~$60M in shares trading and amassed up to $3M daily fees, surpassing most smart-contract platforms during the peak hype. Remarkably, at the depth of the bear market, the application drew nearly 127K users, although some were possibly driven by the prospect of an airdrop while being amongst the rare crypto apps capturing the attention of external figures. High-profile personalities like NBA player Grayson Allen, CEO of Y Combinator Garry Tan, and even gaming influencers like FaZe Banks all joined the platform.
Figure 3: Total number of Transactions on Friend.tech
Source: @cryptokoryo on Dune
In summary, Friend.tech can potentially introduce previously untapped web2 innovations as part of the SocialFi movement. This trend aligns with web3’s financial empowerment and data sovereignty goals by merging social interactions with financial opportunities. Yet, improvements, particularly regarding pricing mechanisms and wallet privacy, are essential for maintaining trust. Notably, vulnerabilities, such as users linking wallets to Twitter accounts, underscore the need for stringent privacy measures in SocialFi apps to safeguard user data and uphold the platform’s integrity within the broader web3 framework. Regulatory risk is another factor to consider as users expecting to profit from their influencer’s shares and their revenue sharing could depict the application as a security. That said, Friend.tech is worth monitoring as it could offer a blueprint for future applications in terms of abstracting crypto’s difficulty.
Bookmarks:
• Our last newsletter was featured on Vikingen; read here.
• Senior researcher, Adrian Fritz, shared his insights on the most recent market conditions with Forkast News
• We published a dashboard tracking the post-mortem of the Curve exploit;
• Have you heard of re-staking your staked ETH? EigenLayer is a new staking primitive that enables the reusing of staked ETH. We built a dashboard to track its progress and adoption.
Next Week’s Calendar
These are the top events we’re monitoring for next week.
• Jackson Hole Annual Event: Jerome Powell’s speech should help clarify the overall FED’s view of the economy following the latest chatter about going for more potential interest rate hikes.
• AVAX and LDO token unlock: ~1% and ~3% of the total respective supply will be released to the market.
Source: Forex Factory
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
The impact of US tariffs continues to dominate market sentiment and risk assets, including crypto, struggled with this uncertainty throughout the month. The Nasdaq Crypto Index™ (NCI™) fell 4.46% in March as the S&P 500 and Nasdaq 100 dropped 5.63% and 7.61%, respectively.
Despite the macro uncertainty from Washington, US policymakers are continuing to embrace crypto in an unprecedented way, including launching a Bitcoin Strategic Reserve, Digital Asset Stockpile, and engaging in expansive work at the regulatory agencies and in Congress.
Our team spent the last week of the month in Washington, meeting with regulators to share our experiences and views on what’s most important for crypto investors in the US. In his latest Notes from the CIO, Samir Kerbage shares what he learned from these meetings and how investors should be thinking about the new regulatory regime in the US.
As always, we are greatly appreciative of your trust in us and are here to answer any questions you may have.
-Your Partners at Hashdex
Market Review
March was marked by the tariff dispute triggered by the Trump administration. Back-and-forth fiscal policies, threats, and retaliations dominated the month’s agenda. The uncertain macroeconomic environment put investors into a defensive stance and negatively impacted crypto assets. The Nasdaq Crypto Index™ (NCI™) closed the month down -4.46% after a period of high volatility. Major market indices, the S&P 500 and Nasdaq-100, also recorded steep declines of -5.63% and -7.61%, respectively. These concurrent drawdowns across equities and crypto underscored March’s broad market caution, as trade war uncertainty prompted investors to flee risk assets.
During times of uncertainty, it is common to observe increased correlation among different classes of risk assets. This pattern played out in March: the 6-month rolling correlation of monthly returns between the NCI™ and the Nasdaq-100 surged to roughly 0.91 (see chart below), its highest level since 2021, indicating that crypto assets were moving almost in lockstep with tech stocks. This spike in correlation confirms that crypto was behaving like a high-beta extension of the tech sector—an amplified version of the Nasdaq-100. The lack of clarity in the global landscape leads investors to reduce their risk exposure and seek protection, a movement known in financial markets as “risk-off” allocation.
6-Month Rolling Correlation of Monthly Returns between the Nasdaq Crypto Index and Nasdaq-100 (Apr 2021–Apr 2025).
The chart illustrates how this correlation has been increasing since the American elections in November 2024 and spiked to approximately 0.91 in the most recent period—a multi-year high. This visual evidence reinforces the view that crypto assets have been moving closely in tandem with tech stocks, effectively acting as a high-beta version of the Nasdaq-100 during the March risk-off phase.
Following this trend, risk reduction was evident within the crypto asset class. Among the NCI’s constituents, Bitcoin (BTC) posted a decline of -1.93%, withstanding the downturn far better than other constituents such as Ether (ETH, -17.4%) and Litecoin (LTC, -34.6%). BTC’s relatively mild drop in this sell-off aligns with the idea that it increasingly trades like a high-beta proxy for large-cap tech. It still declined, but less severely, whereas smaller-cap crypto assets behaved more like speculative growth stocks and suffered outsized losses. The only exception to the negative results was Cardano (ADA), which surprised with a positive return of 3.88% despite no significant protocol developments during the month.
Thematic indices also faced a challenging environment. As highlighted in previous letters, smaller capitalization assets tend to suffer more during periods of market stress, mirroring how speculative small-cap stocks are hit hardest in equity sell-offs. The biggest negative highlight was the Digital Culture Index, which dropped -17.45%, followed by the Decentralized Finance (DeFi) and Smart Contract Platform (Web3) indices, which fell -16.73% and -12.07%, respectively. The Vinter Hashdex Risk Parity Momentum Index recorded a negative result of -8.26% but outperformed the three other thematic indices, benefiting from its high allocation in BTC and TRX (which gained 4.68%). The heavy weighting in BTC – the more resilient large-cap crypto – helped cushion this index, underscoring the relevance of the momentum factor in a well-diversified strategy during times of market stress.
The market remains on the lookout for the outcome of the fiscal policy discussions, hoping for a reduction in uncertainties and an end to the tariff war. That would likely mark the moment when investors regain their appetite for risk assets, including crypto assets. The U.S. government has also signaled interest in advancing the crypto agenda, a development that could drive the asset class to a new level of adoption. We remain confident in our positive outlook for the rest of the year and the long term.
Top Stories
US creates Bitcoin Strategic Reserve and Digital Asset Stockpile
The Bitcoin Reserve will be capitalized with BTC owned by the Department of Treasury, which could further increase via new budget-neutral acquisitions. The stockpile will also include assets owned by the Treasury. This marks a major milestone, with the US government starting to integrate major crypto assets and continues the new administration’s work to lead the global crypto economy.
Stablecoins surpass $230 billion in market value
The total stablecoins market capitalization surpassed $230 billion amid institutional demand for dollar-backed digital assets. This showcases one of the most successful applications for crypto technology enhancing traditional financial payments. It could also pave the way for new use cases that require a strong and reliable global payment system.
FDIC eases banks’ ability to engage in crypto activities
The FDIC has rescinded previous guidelines which prevented financial institutions from engaging with crypto activities without prior sign-off. By removing bureaucratic hurdles, banks may more readily over crypto-related services, potentially leading to broader adoption and integration of digital assets into the financial system.
Spotlight on the tariff war
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