Bitcoin flash crash

Bitcoin Flash Crash: What Caused the Selloff?

By:Ryan Grace

Bitcoin’s volatility drought is over

  • Sudden crypto selloffs are nothing new.
  • The Fed might not be done with rate hikes.
  • We’re likely to see more weakness in crypto.

Bitcoin flash-crashed this week, falling as much as 7% on Thursday, resulting in over a billion dollars in exchange liquidations according to data from CoinGlass.

While sudden selloffs in crypto are nothing new, the catalyst for the recent crash has less to do with crypto, and instead is related to the same forces driving short-term selling across markets.

Rising interest rates and dollar rallies are often headwinds to higher prices, and with this week’s FOMC minutes signaling the Fed might not be done with rate hikes just yet, this has given traders across all assets reason to take profits.


90-day correlations

For more context around the dollar and rates, the 90-day correlation between the U.S. dollar index and bitcoin is -0.60, while bitcoin’s relationship with the 10-year U.S. Treasury yield is -0.50 over the same period.

So, if we see a sustained move higher from here in rates and the dollar, we’re likely to see more weakness in crypto, despite its potential long-term prospects.

Volatility remains low

Regardless of the sudden sell-off, the BTC 30-day implied volatility is still near a one-year low. At 45% currently, bitcoin options are pricing in roughly a $1,600 +/- move over the next week which implies a probable trading range of about 28,000 to 24,660.

Ryan Grace, tastylive's head of digital assets, is a co-host on the Crypto Conversations show on the tastylive network.

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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