The digital assets Story (IP) and The AI Prophecy (ACT) experienced a sharp 20% decline followed by a quick recovery earlier today, with the cause believed to be linked to high trading volumes on Binance Futures. This occurrence raised concerns, especially after MANTRA's OM token dropped 90% the previous day, with fingers pointed at Binance for the crash.
The tokens ACT and IP, although belonging to different projects, displayed similar crash and rebound patterns simultaneously. The market conditions on Binance Futures are considered to be a contributing factor to these fluctuations.
The sudden drop and subsequent rise in prices of ACT and IP are attributed to the trading activity on Binance Futures, a crypto trading platform associated with the world's largest cryptocurrency exchange. This event has sparked speculation within the community regarding the impact of Binance Futures on asset prices.
ACT, an AI token, and IP, a token focused on blockchain-based intellectual property, both experienced steep declines of 27% and 21.5%, respectively. Nonetheless, they managed to recover from the fall, with ACT showing a net growth of 2.5% within 24 hours. Despite being a well-performing asset over the past few months, the sudden price drop of IP caused worry among investors, which was alleviated by the subsequent rebound, hinting at short-term volatility.
Data from Coinglass revealed that a substantial number of ACT futures trades were executed on Binance, indicating Binance's significant influence on price discovery. The high volume of trades can lead to rapid liquidations, affecting token prices significantly.
The prevalence of futures markets over spot markets in terms of volume and speed enhances liquidity but also introduces fragility. A cascade of liquidations, arising from the closure of long positions due to falling prices, can escalate downward pressure on asset prices. The simultaneous drop in IP and ACT suggests that leverage and crowded positions could have triggered such a scenario on Binance.
The recent events highlight the growing influence of derivatives markets on token prices, emphasizing the impact of short-term trading strategies on price movements compared to long-term value creation.