Crypto Liquidations Hit $238M As Bitcoin Jumps 10%
Data shows that crypto futures liquidation has reached $238 million in the last 24 hours as Bitcoin has seen a 10% increase.
Bitcoin Liquidations Reach $238 Million
When an investor opens a futures contract on any derivatives exchange, they must first post an initial collateral called the margin. Such a contract can be liquidated if the holder accumulates losses that have eaten away a certain part of this margin.
By “liquidation” is meant here that the derivatives exchange forcefully closes the contract when losses of this specific degree accumulate (the exact percentage may vary from platform to platform).
One factor that can increase the risk of any contract being liquidated is “leverage”. The leverage is a loan amount that a holder can choose to take on against the margin, and it is generally equal to many times the initial position itself.
The advantage of leverage is that any profit an investor makes now will be many more. But on the flip side, any losses incurred by the holder will also be more of the same factor as the 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 overall volatility of assets like Bitcoin can be quite high.
The other is that leverage as high as 50 or even 100 times the original security is usually quite available on many of the platforms. These two factors combined can mean that uninformed high leverage trading can be quite deadly in this market.
Now, below is the data for the liquidations that have happened in the crypto 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 in crypto futures contracts were liquidated in the last 24 hours. Around $111 million of these took place in the last 12 hours alone.
About 80% of this futures flush involved short contracts, which is a trend that makes sense as this mass liquidation event was triggered by sharp increases in the prices of assets like Bitcoin.
A mass liquidation event is popularly called a “squeeze”. Since the last leverage flush mainly involved short contracts, it was an example of a “short squeeze”. A distinctive feature of a squeeze is that liquidations can coincide during them.
This happens because when a large amount of liquidations take place at once, they only end up further amplifying the price volatility that caused them to begin. This extended price movement then causes even more liquidations in the market. And then, under pressure, liquidations sort of cascade together.
BTC price
At the time of writing, Bitcoin is trading around $22,000, down 1% in the last week.
The crypto seems to have shot up during the past day | Source: BTCUSD on TradingView
Featured image from Pierre Borthiry – Peiobty on Unsplash.com, chart from TradingView.com
