Crypto Sees $236 million Liquidations As Bitcoin Plunges
Data shows that the cryptocurrency market has seen liquidations worth around $236 million as Bitcoin dropped to $29,300 today.
Crypto futures market saw liquidations of around $236 million in the last 24 hours
A “sellout” occurs when the holder’s bet on a futures contract fails and the price moves in the direction of loss just enough so that a certain percentage of the margin (the initial guarantee) is drained, causing the derivatives exchange to close or forcibly “liquidate” the position.
One factor that can significantly increase the settlement risk of a contract is the degree of leverage that the investor has chosen. “Leverage” here refers to a loan amount which is often many times the starting position itself.
While leverage means that any profits the holder earns become larger, it is also true that any losses incurred would also be magnified to the same degree.
In the cryptocurrency market, mass liquidations taking place in a short space of time are not an uncommon sight. The obvious reason behind this is that most of the assets in the sector can show quite sharp volatility at times.
There is another factor at play here, however, and that is the fact that extreme amounts of leverage can also be quite affordable in the market. Many platforms can easily distribute leverage values up to 50x or even 100x the starting position.
This high leverage combined with the general volatility of currencies means that uninformed trading can be quite risky in the market, which is why large sell-off events occur so often.
Now, below is a table from CoinGlass that shows the data related to liquidations that took place in the cryptocurrency futures market in the last day.
Looks like the market has registered a massive amount of liquidations today | Source: CoinGlass
As you can see above, over $236 million worth of crypto futures contracts settled in the last 24 hours. In total, this leverage flow involved the liquidation of over 72,500 traders.
Most of these selloffs took place in the past twelve hours, which makes sense given that most of today’s price volatility for Bitcoin and other assets took place in this period.
Additional details from CoinGlass also show that the extreme majority of liquidations (around 88%) during the last day involved long contracts. The reason behind this is that the mass sell-off event was mainly triggered by a sharp decline in the market.
Interestingly, the Ethereum futures market saw a higher amount of liquidations ($56 million) than the Bitcoin futures market ($46 million). This is likely due to the fact that ETH’s 24-hour decline (6%) was steeper than BTC’s (3.5%).
Mass liquidation events like today are popularly called “squeezes”. In squeezes, the sharp price action triggers a large number of contracts to be liquidated, which in turn only fuels the price movement further. This amplified price movement naturally ends up causing even more liquidations, and in this way liquidations can cascade like a waterfall.
At the time of writing, Bitcoin is trading around $29,300, down 3% over the past week.
BTC has sharply plunged during the past day | Source: BTCUSD on TradingView
Featured image of Pierre Borthiry – Peiobty on Unsplash.com, chart from TradingView.com