Crypto Liquidations Hit $238M As Bitcoin Jumps 10%
Data shows that crypto futures settlements reached $238 million in the last 24 hours, with Bitcoin seeing a 10% increase.
Bitcoin liquidations reach $238 million
Whenever an investor opens a futures contract on any derivatives exchange, he must first put up some initial collateral called margin. Such a contract can be liquidated if the holder accumulates losses that have consumed a specific part of that margin.
By “liquidation” what is meant here is that the derivatives exchange forcefully closes the contract when losses of that specific degree are accumulated (the exact percentage may differ from platform to platform).
One factor that can increase the risk of any contract being liquidated is “leverage”. Leverage is a loan amount that a holder can choose against margin and is usually equal to many times one’s starting position.
The benefit of leverage is that any profits an investor earns now will become much more. However, on the other hand, any losses incurred by the holder will also be greater by the same factor as leverage.
In the crypto market, mass liquidation events are not a particularly uncommon sight. There are mainly two reasons behind this; the first is that the general volatility of assets like Bitcoin can be quite high.
The other is that leverage of up to 50 or even 100 times the initial guarantee is usually quite affordable on many platforms. These two factors combined can mean that uninformed trading with high leverage can be quite deadly in this market.
Now, below is the data of liquidations that took place in the cryptocurrency futures market in the last 24 hours.
Looks like a pretty high amount of liquidations have taken place today | Source: CoinGlass
As you can see above, a total of $238 million worth of crypto futures contracts settled on the last day. About $111 million of them occurred in the last 12 hours alone.
About 80% of that futures flow involved short contracts, a trend that makes sense given this mass sell-off event was triggered by sharp increases in asset prices like Bitcoin.
A mass sell-off event is popularly called a “squeeze”. As the last leverage discharge involved mainly short contracts, it was an example of a “short squeeze”. A peculiar feature of a squeeze is that sales can cascade during them.
This is because whenever a large amount of liquidations occur at once, they end up only amplifying the price swing that caused them in the first place. This prolonged price movement causes even more liquidations in the market. And so, during squeezes, sales kind of cascade down.
BTC price
At the time of writing, Bitcoin is trading around $22,000, down 1% over the last week.
The crypto seems to have shot up during the past day | Source: BTCUSD on TradingView
Featured image of Pierre Borthiry – Peiobty on Unsplash.com, chart from TradingView.com