Data shows the cryptocurrency market has observed liquidations amounting to about $236 million as Bitcoin has plunged to $29,300 today.
Crypto Futures Market Has Seen Liquidations Of Around $236 Million In Last 24 Hours
A “liquidation” occurs when a futures contract holder’s bet fails and the price moves in the loss direction just enough that a certain percentage of the margin (the initial collateral) is drained, leading to the derivative exchange to forcibly close or “liquidate” the position.
One factor that can significantly increase the risk of a contract getting liquidated is the degree of leverage the investor has opted for. “Leverage” here refers to a loan amount that’s often many times the initial position itself.
While leverage means that any profits that the holder earns become magnitudes more, it’s also true that any losses incurred would also be magnified by the same degree.
In the crypto market, mass liquidations taking place within a short span of time aren’t an uncommon sight. The obvious reason behind it is that most of the assets in the sector can display quite sharp volatility at times.
There is another factor at play here, however, and it’s the fact that extreme amounts of leverage can also be quite accessible in the market. Many platforms may easily hand out leverage amounts as high as 50x or even 100x the initial position.
Such high leverage combined with the general volatility of the coins means that uninformed trading can be quite risky in the market, which is why large liquidation events take place frequently.
Now, below is a table from CoinGlass that shows the data related to the liquidations that have occurred in the crypto futures market during the past day.
Looks like the market has registered a massive amount of liquidations today | Source: CoinGlass
As you can see above, more than $236 million in crypto futures contracts have been liquidated during the last 24 hours. In total, this leverage flush involved the liquidation of over 72,500 traders.
The bulk of these liquidations came inside the last twelve hours, which makes sense as most of today’s volatile price action of Bitcoin and other assets has come in this period.
Additional details from CoinGlass also show that an extreme majority of the liquidations (about 88%) during the past day involved long contracts. The reason behind this is that the mass liquidation event was mostly triggered by a sharp decline in the market.
Interestingly, the Ethereum futures market has registered 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%) has been sharper than BTC’s (3.5%).
Mass liquidation events like today’s are popularly called “squeezes.” In squeezes, sharp price action triggers a large number of contracts to get liquidated, which in turn only fuels the price move further. This amplified price move then naturally ends up causing even more liquidations, and so, in this way, liquidations can cascade together like a waterfall.
At the time of writing, Bitcoin is trading around $29,300, down 3% in the last week.
BTC has sharply plunged during the past day | Source: BTCUSD on TradingView
Featured image from Pierre Borthiry – Peiobty on Unsplash.com, chart from TradingView.com