Why Does HYPE Benefit as Market Liquidations Grow Larger?

Hyperliquid (HYPE) has shown resilience in the face of market downturns this year, driven by unique factors that set it apart from other cryptocurrencies. Analysts note that liquidation losses have actually contributed to pushing HYPE’s price higher.

But how long can HYPE maintain its outperformance compared to the broader market? A closer look at on-chain and market data provides a more nuanced perspective.

While the overall cryptocurrency market experiences capital outflows, Hyperliquid (HYPE) has attracted significant inflows. Data from TradingView reveals that while the total crypto market capitalization dropped from $3.2 trillion to $2.2 trillion since mid-last month, HYPE’s price surged by 60% from $20.6 to $33.6 during the same period.

This divergence indicates that internal factors within HYPE have outweighed the market’s downward pressure.

Recent reports from BeInCrypto attribute part of this momentum to a significant increase in trading volume for HIP-3 futures contracts on Hyperliquid.

Grayscale Research has also noted a surge in perpetual futures trading for non-crypto assets on Hyperliquid earlier this year, with a seven-day average trading volume exceeding $900 million.

Additionally, Ripple Prime has granted institutional access to Hyperliquid’s on-chain derivatives tools, further boosting liquidity and adoption.

On February 5, a day marked by heightened market fear, Coinbase’s official listing of HYPE for trading had a positive impact on the token. Despite the broader market sell-off, HYPE remained largely unaffected.

A listing on a major exchange like Coinbase increased liquidity and demand for HYPE, attracting both institutional and retail investors. This allowed HYPE to withstand selling pressure and even extend its gains amidst a declining market.

“Coinbase is listing HYPE! There are two nuances for this listing:

This is likely a precursor for spot HYPE ETFs to begin trading since Coinbase is the custodian.

US investors still have trouble getting HYPE exposure; a Coinbase listing alleviates that.”— Steven.hl, Yunt Capital, commented.

Some analysts suggest that HYPE’s absence from Binance may be advantageous, helping the token avoid widespread sell-offs. Investor MartyParty highlights that HYPE is the only Layer-1 asset not listed on Binance, thus steering clear of the “liquidity hunt.”

Analysts argue that there’s more depth to HYPE’s price performance story. Coinglass data reveals that out of over $2.6 billion liquidated in 24 hours, Hyperliquid accounted for over $630 million. This figure was slightly below Bybit’s but surpassed Binance’s.

Heavier liquidations tend to support HYPE’s price due to a fee-revenue-based buyback mechanism. Increased liquidation volume leads to higher trading volume, driving up fee revenue.

DefiLlama data indicates that on February 5, Hyperliquid generated $7.49 million in fees and $6.84 million in revenue, marking the highest levels since the market crash in October last year.

While most projects see reduced revenue during market crashes, Hyperliquid benefits from liquidation activity as an exchange, directly impacting HYPE’s price. Hyperscreener data shows that over 160,000 HYPE tokens were bought back on February 5, the highest level since the October market downturn.

This unique structure provides HYPE with a mechanism to counter negative market pressures.

“The recent uptick here is most likely due to a lot of liquidations, which tend to drive significant fees and revenue.”— Analyst Thor noted.

However, it’s important not to overlook risks by focusing solely on positive narratives. On February 6, 9.92 million HYPE tokens are set to unlock, and ongoing negative market sentiment could outweigh HYPE’s positive factors.

BeInCrypto’s latest analysis underscores the significance of the $30 level, indicating that price movements above or below this threshold will shape HYPE’s trajectory in the coming month.