Crypto Futures Sees $350M in Liquidations as Bitcoin Falls Below $20k

Data shows that the crypto futures market has seen nearly $350 million worth of liquidations in the past 24 hours as Bitcoin briefly fell below $20,000.

Around $348 million worth of Crypto Futures were liquidated in the last day

In case someone doesn’t know what a “liquidation” is, it’s ideal to first get a basic understanding of how margin trading works before diving into the data.

Whenever investors open a crypto futures trading contract on derivatives exchanges, they must first post some initial collateral, called the margin.

Against this margin, they can choose to take on “leverage”, which is a loan amount often many times the original position.

The advantage of taking leverage is that if the price of the asset the contract is for ends up moving in the direction the investor is betting on, then the profit earned will be more in the same order of magnitude as the leverage.

However, it is also true that if the bet does not work, and the asset moves in the opposite direction, the losses will also be many more this time.

When such losses accumulate and eat away a certain percentage of the margin, the exchange forcibly closes the position. This is precisely what a “liquidation” is.

Now, here is the data for the crypto futures market liquidations that took place in the last 24 hours (of all coins):

Looks like the market saw large amounts being flushed today | Source: CoinGlass

As you can see above, the crypto futures market has seen almost $350 million in liquidations in the last day.

Only $71 million of these liquidations occurred in the past twelve hours, suggesting that the bulk of them came in the previous half day.

75% of the total contracts involved in this futures flush came from longs, a trend consistent with the main trigger behind the event, the decline in the price of Bitcoin below the $20k level.

Large liquidations like today’s are not particularly rare in the crypto market; the high general volatility of most coins, combined with the fact that leverage options as large as 100x are readily available on many exchanges, means that leveraged trading can be a risky affair for uninformed traders.

BTC price

At the time of writing, Bitcoin’s price is hovering around $20.2k, down 5% in the last week. Over the past month, the crypto has dropped 5% in value.

The chart below shows the trend in the price of the coin over the last five days.

The value of BTC seems to have plunged down over the last day | Source: BTCUSD on TradingView

Featured image from Dmitry Demidko on Unsplash.com, chart from TradingView.com