U.Today

A series of corrections and liquidations in the cryptocurrency market has resulted in a significant setback, leading to a $100 billion loss in market capitalization. Recent data shows this dramatic drop, with total market capitalization falling from $3.82 trillion to $3.62 trillion within a few short hours.

Such a sudden decline indicates broader structural issues, primarily stemming from market-wide overleveraging. Bitcoin, the main cryptocurrency at the center of this turmoil, is now in a critical correction phase despite previously demonstrating resilience.

The psychologically significant $100,000 mark has proven to be a formidable barrier, preventing Bitcoin from sustaining its advance above it. As whales begin taking profits, the short-term bullish momentum has also started to diminish, further straining the asset. Currently, Bitcoin is trading below crucial EMAs, increasing the likelihood of further decline in the short term.

The primary cause of this collapse is overleveraging. Of the $1.58 billion in liquidations over the last 24 hours, $172 million are attributed solely to Bitcoin, according to the liquidation heatmap. Most of these liquidations are related to short positions, illustrating that the market's aggressive long positioning is facing resistance. As prices fall, this imbalance heightens volatility and initiates a chain reaction. Ethereum has also experienced large liquidations, totaling $229 million lost.

Other assets like XRP, Solana, and Dogecoin are also under downward pressure, resulting in a similarly challenging situation for the overall altcoin market. The current rally, driven by overly optimistic market sentiment, appears fragile, underscoring the need for a healthy correction.

This correction phase is vital for resetting overextended positions and laying a more solid foundation for future growth. While the overall outlook for cryptocurrencies remains positive, increased volatility is expected in the short term as the market adjusts.

This article was originally published on U.Today