The cryptocurrency market rebounded sharply from Tuesday’s losses, with Bitcoin going back above $34,000 to as high as $34,380 from the new 2021 low of $28,845 on Coinbase. The price of Ether also recovered to nearly $2,045 after touching $1,700 during the sell-off.

The market-wide sell-off resulted in the liquidation of $1 billion for two days in a row, nowhere near more than $8.6 billion on May 18 and over $10 billion on April 17, according to Bybt.

These latest numbers, however, are expected to be much higher given Binance only pushes out one liquidation each second and now accounts for less than 30% of the total liquidation share while before making the changes, it was responsible for about 50% of the crypto market liquidations.

Liquidations are actually the reason why the prices rebounded so nicely. “Liquidations lead to higher odds of mean reversion. The more liquidations you see, the stronger the reversion,” noted trader and economist Alex Kruger.

According to him, that is why buying the dips is easy in a bull market and tough in bear markets.

“Corollary: generally the ideal time to buy is during intraday panics when liquidations taking place, and not after you get the reversal. In other words, long when feeling extremely bearish, sell when extremely bullish. Go against your instincts,” he shared on Twitter.

Sam Trabucco, a quantitative crypto trader at Alameda, also explained this on a Twitter thread as he shared that $100s of millions in net buying liquidations and vice-versa creates momentum.

Given that so much of this buying and selling comes from liquidations, which are not organic, there is even more propensity for reversion.

As for what happened was “people are over-reacting to news, liquidations are exacerbating that over-reaction, and then people are trading the other way when they realize that.”

“BTC's price has been very momentum-driven on a days-long timescale,” and the narratives prevailing in the market lately have been China FUD driving prices down, Bitcoin being bad for the environment, and institutions are underwater and need to sell.

But Trabucco argued that none of that is concrete as China FUD is not really new, the US is far from regulating the crypto away, and Michael Saylor “isn't fucked.”

During this week-long crash, Binance’s average funding rates on Bitcoin perpetual contracts, which matters a lot for the market, has been paying longs while open interest was shrinking, suggesting longs were already closing.

FTX, Bybit, OKEx, and others were having a similar pattern that “people were closing for whatever reason, and aggressively selling to do so.”

And with net liquidations highest in recent days, this spike helped fuel reversion because “no one wanted to sell down to $30k (as) buying there is a predictably great trade,” said Trabucco.

“It seems like MAYBE today marks yet another paradigm switch? We'll have to wait and see,” he concluded.

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