Bitcoin plummets $10,000 on El Salvador's first day

The price of bitcoin has dropped by $10,000 in a matter of hours, on the day that El Salvador officially accepted it as legal tender.

According to crypto exchange Binance, the price of bitcoin fell from highs of $53,000 to as low as $42,800 — while it dropped below $40,000 on crypto exchange Huobi.

The price of bitcoin dropped to $43,000 on Coinbase. Source: TradingView.

Since then the price of bitcoin has rebounded somewhat, back up to $46,000.

As a result of the crash, more than $2.65 billion has been liquidated in the last hour, according to data from The Block Research.

A breakdown of liquidations in the last hour on multiple exchanges. Source: The Block Research.

During the price drop, El Salvador's president Nayib Bukele tweeted that he is "Buying the dip," and has bought a further 150 BTC ($6.9 million)— on top of the 400 BTC ($18.4 million) previously purchased.

The market became overconfident

Over the last few weeks, bitcoin funding rates had started creeping back up, from lows of -0.20% to a high of 0.12%, according to Bybt. Similarly, ether and other altcoins saw funding rates rise even higher — with ether's approaching figures seen during its peak in May. This indicates that traders were going leverage long, exposing themselves to the risk of a downwards drop.

Ahead of the crash, the market saw a surge in options put buying, indicating bearish sentiment in derivatives. The sell-off was led by ether and other long-tail cryptocurrencies, triggering cascading liquidations.

Over the past hour, there's been a rise in funding rates, indicating a stabilization of the market, according to crypto financial services firm FalconX. "Perp funding rates have collapsed from just over 5bps at peak to ~1bp currently," said head of institutional sales Aya Kantorovich. "Market seems to be finding its footing."

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