Data shows the crypto futures market has observed more than $400 million in liquidations during the last 24 hours as Bitcoin breaks above $23k.
More Than $400 Million In Crypto Futures Liquidated In Only The Past Day
A “liquidation” occurs when losses pile up in a futures contract and eat away a specific percentage of the initial margin or collateral (the exact portion is dependent on the derivatives exchange) so that the exchange forcibly closes the position.
Mass liquidations in the crypto market aren’t too uncommon for a couple of reasons. First, the volatility of most coins (that are not stablecoins) is generally high and even hourly fluctuations can be sometimes quite significant.
The other reason is that large amounts of leverage is pretty accessible in most exchanges. “Leverage” is a loan value that any futures user can borrow against the margin. Many exchanges even offer figures as high as 100x the initial position.
While leverage can increase profits by magnitudes more if the bet works out, the same applies to losses as well. This, combined with the volatile nature of even the biggest coins like Bitcoin, can make uninformed margin trading in crypto futures quite risky.
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Now, here is the data for the liquidations occurring in the cryptocurrency market during the last 24 hours:
The largest single liquidation in the last day measured more than $2 million in value | Source: CoinGlass
As you can see above, almost $405 million was flushed down during the past 24 hours in the crypto futures market. Around $133 million of these liquidations took place in the last twelve hours alone.
An event where huge liquidations such as today’s occur is called a “squeeze.” During these events, a sudden price change causes many contracts to close at once, which only amplifies this price swing, and leads to even more liquidations.
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A little short of 100k traders were involved in today’s liquidation squeeze and more than 50% of the contracts closed belonged to shorts.
This trend makes sense as a majority of the liquidations would have been triggered by coins like Bitcoin observing a sharp increase in their prices.
At the time of writing, Bitcoin’s price floats around $23.1k, up 2% in the last seven days. Over the past month, the crypto has gained 11% in value.
The below chart shows the trend in the price of the coin over the last five days.
Looks like the value of BTC has surged up over the past couple of days | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, chart from TradingView.com