The crypto market crash deepened on Saturday as futures open interest collapsed and liquidations surged past $1.6 billion, the highest level in weeks. Traders are questioning whether this sell-off will persist or if a recovery is on the horizon.
Three triggers behind the sell-off
Geopolitical risk tops the list. Polymarket data shows the probability of Trump launching an attack on Iran has jumped to over 80%. A military conflict could spike oil prices and destabilize financial markets. Bitcoin’s safe-haven appeal has meanwhile eroded, prompting capital flight from risky assets.
The second factor is leverage unwinding. The market still bears scars from the October 10 liquidation event triggered by Trump's tariff threats. Since then, crypto futures open interest has shrunk from $255 billion to $113 billion, leaving the system vulnerable to cascading liquidations.
Third, Trump appointed inflation hawk Kevin Warsh as the next Federal Reserve chair, dashing expectations that BlackRock’s Rick Rieder would get the nod. A more hawkish Fed would tighten financial conditions, weighing on risk assets.
Can bulls stage a comeback?
BitMine chairman and popular analyst Tom Lee believes the crash will soon end. He points to historical precedents: Bitcoin dropped over 30% from its March peak to August low, then rebounded to a record high in November. It also fell below $16,000 in December 2022 before surging. Lee argues Bitcoin always emerges from major dives.
On the macro side, the U.S. dollar index continues to weaken, historically a tailwind for risk assets. The Federal Reserve is also likely to resume rate cuts soon. Additionally, the MVRV ratio for Bitcoin and major altcoins has fallen sharply, signaling bargain valuations. The most probable scenario: the sell-off continues near-term but a rebound follows later this year.