The month of March 2020, will go down as one of the most volatile and also one of the worst performing months in the short history of digital assets. On March 12th the S&P 500 recorded one of the quickest declines in prices ever and ended up losing about 9.5% on that day alone. The following 15 hours saw most digital assets losing value in the region of 50%. The beginning of the month was looking up after the sell-offs in February, with ETH close to regaining 10%, however that didn’t last long. Around March 8th assets across the board went on a nosedive.
The initial drop wiped out about 10-20% of value for most projects, however the fall a few days later was of even larger magnitude. During that time we can see that volatility has spiked to levels that are rarely seen, even in the crypto markets. The 15 hours after the S&P started falling led to one of the biggest drops in the recent months, with some attributing this to rumours about a wire being unplugged at BitMex. Others blame it on the heavy leverage offered on some crypto exchanges, potentially resulting in cascading margin call liquidations. In either case major liquidations happened during those times with many of them heavily leveraged. It is common to have leverage in traditional finance as well, however most of the time that leverage is in the 2-3x region with only a select few brokers offering higher leverage. However, in crypto it has become the norm to see leverage in the 50x or even 200x region.
Many traders use leverage to increase their upside potential, but a large number are not managing the downside properly. In times of extreme volatility, many get wiped out and will see their positions liquidated, starting a frenzy of sell-offs from like-minded traders. The amount of leveraged positions on Bitcoin alone had spiked in mid February to about $5.4 billion with many of them being wiped out in March. It is safe to assume that traders across the board will be more careful in including leverage into their trades in the future.
Most digital assets were able to recoup some of their losses during the remainder of the month, with Bitcoin leading the recovery. Spreads widened throughout the remainder of the month as well, potentially indicating that another period of uncertainty is on the horizon. At the end of the month, BTC and XRP were the top performers, by only losing roughly 30% of their value.