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Highlights
- Ethereum experienced a sharp increase on OTC volume this week.
- There is speculation about a potential fund collapse, including by Arthur Hayes.
- Some analyst note that the fund in question is Scimitar Capital.
Ethereum, the second-biggest crypto, has faced major headwinds recently. ETH price has dropped by 33% from the YTD high, and it continues to underperform Bitcoin. It has lost market share in key sectors to Solana and Tron, while Ethereum Foundation has sold some of its holdings.
Most recently, speculation that one prominent firm in the crypto space has collapsed has contributed to its weak performance.
Ethereum Volatility Spike May Have Liquidated a Firm
There is speculation that one firm in the crypto industry may have gone bankrupt because of the recent Ethereum volatility. Arthur Hayes, the founder of BitMex, and one of the most connected people in crypto, noted that he had heard such rumors.
In an X post, one user known as Jake O, noted that he had observed a spike in ETH demand via the over-the-counter market amid these bankruptcy rumors. Specifically, he noted a short-term spike in short-dated volume on Monday as crypto prices fell. He suspected that the spike was because of a seller being forced to liquidate, adding:
“Whatever the driver, prices suggest capitulation (forced or not) whilst sentiment for the asset is horrific. Once vols come in at the front-end, I do think it’s worth watching.”
The OTC market is different from that in centralized and decentralized exchanges because transactions are not tracked publicly. Experts widely watch this aspect because it mostly involves large institutional investors.
According to Jake, the short spike in the short-dated ETH volume was a sign that a company was forced to liquidate positions quickly, which often leads to substantial volatility in the market.
Analysts Speculate About Scimitar Fund Liquidation
Crypto analysts connected the dots and speculated that the fund in question was Scimitar Capital, a trading firm.
In an X post, Whale Watcher noted that the company was forced to liquidate $2 billion of its altcoin positions. He noted that the firm distributed these funds to its limited partners, leading to more ETH drops.
The actions by Scimitar Capital are not new. The fund decided to liquidate its crypto holdings in 2023, triggering a flash crash in the crypto market. As with this time, the fund attributed the decision to liquidate as a way of returning funds to its LPs. Our attempts to contact Scimitar Capital for a comment were not possible.
Summary
The value of Ethereum has remained under pressure this month. The broader factors have been its losing market share and Ethereum Foundation sales. Reports about a major liquidation of a big fund has contributed to this increased volatility.
Frequently Asked Questions (FAQs)
1. Why did Ethereum experience a big increase in OTC volume?
2. Why is OTC activity important in crypto?
3. What is Scimitar Capital?
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