New Year, New Drop

Down we go! Crypto markets tumbled this morning, with the total crypto market cap (TOTAL) wicking down as much as 12%, its largest single-day decline since the collapse of FTX in November 2022. What's causing the crypto weakness?

Some blamed the drop on a report released by crypto services platform Matrixport, which reasoned that the SEC will deny spot Bitcoin ETF applications this month and cautioned crypto traders to hedge their portfolios against a possible -20% BTC price plunge.

While the release of this Matrixport report coincides with a local Bitcoin top, its publication was not the trigger that sent BTC price lower. Rather, the fall in crypto prices is a result of record high funding rates: yesterday, BTC longs were paying 66% annualized!

Crypto market participants have gone uber long in anticipation that the approval of spot BTC ETFs will unleash an unprecedented flow of capital into the industry, jacking up funding rates in the process and making it more costly for longs to hold open their positions.

Today’s dip is due to stressed longs getting washed out of their positions and is in no way tied to a change in the market's perception of BTC spot ETF approval.