BlockByte Weekly: Historic Liquidations In Crypto

Hi Reader,

Thanks for reading The BlockByte Weekly, where we summarise the key updates in crypto over the last week and provide our perspective on what you need to know as an investor.
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Executive Summary​
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• Historic $2.29B Liquidation Event: February 4th saw the largest crypto liquidation in history, surpassing both COVID and FTX crashes, triggered by Trump's trade tariffs​
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• Coinbase Q4 Milestone: Posted $273M quarterly profit, now managing $420B in assets, would rank as 21st largest US bank​
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• ETF Race Continues: Solana leads XRP in ETF approval odds at 85% vs 80%, though regulatory framework remains complex

Market Update​
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Historic Liquidation Event Rocks Crypto Markets

Over the last week, the overall crypto market cap has declined by ~10% to US$3.1T as Trump's trade tariff actions triggered the largest single day liquidations in crypto markets history on February 4th, surpassing both FTX and COVID from a leverage wipe-out perspective.

The cryptocurrency market suffered a massive sell-off, resulting in US$2.29 billion in liquidations. According to CoinGlass data, 733,974 traders were liquidated, with US$1.89 billion coming from long positions (82.73% of total liquidations). The largest single liquidation order occurred on HTX, where a BTC-USDT trade worth $38.78 million was wiped out.

Ethereum was particularly hard hit, seeing $614.34 million in liquidations, with 77.07% being long positions. Long positions accounted for $473.49 million while short positions liquidated $140.85 million.

Whilst we don't like to make predictions, the occasional flush out of leverage can be conducive to a new leg up in the market, and we hope that the worst of the leverage and pullback has been seen for the short-term at least.

To understand the leverage landscape, here's how major exchanges compare in terms of maximum leverage offered:

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Coinbase Achieves Major Milestone

Coinbase reported a $273M net profit for the quarter, the first positive quarter since Q4 2021. They now manage $420 billion in customer assets, surpassing the holdings of the 21st largest US bank NYCB. CEO Brian Armstrong painted a picture of his mission which is to create greater economic freedom for all through sound money and fairer more transparent financial systems.

ETF Race Heats Up

A race is heating up between XRP and Solana for the next spot ETF approval, with crypto betting platform, Polymarkets currently favoring Solana with an 85% chance of approval in 2025, compared to XRP's 80%. There is still a lack of clarity around whether the new administration will be enough for the new SEC to grant either crypto an ETF. Whilst XRP secondary sales (XRP traded on exchanges amongst investors) were not deemed to be securities offerings, Ripple (the XRP holding company and creator) were fined US$125M for the sales they made of XRP to other institutions and the public directly and this was deemed a securities offering.

In the US, ETFs generally fall into different regulatory categories based on the underlying assets:

• Securities ETFs - regulated under the Securities Act of 1933 and Investment Company Act of 1940
  • Track stocks, bonds, or other securities
  • Require SEC registration as investment companies
• Commodity ETFs - regulated primarily under the Commodity Exchange Act
  • Track physical commodities like bitcoin, gold, oil, or agricultural products
  • Often structured as commodity pools or trusts

CFTC has primary oversight, though the SEC still involved due to the ETF shares being securities.

It remains to be seen if XRP and SOL will be granted commodity ETFs due to their higher levels of centralisation or will fall under a securities ETF and be forced to register as investment companies.
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For A Confidential Discussion​
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Feel free to reach out anytime to discuss how we can support you on your digital asset journey.
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Until next week,
James

James Brannan
Chief Executive Officer
BlockByte Capital
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​james@blockbyte.com.au​
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BlockByte does not provide financial advice. We provide execution support, research and insured custody for investing in digital assets. Reach out to our team to discuss how we can help.

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