Crypto Sees $236M Liquidations As Bitcoin Plunges

Data shows that the cryptocurrency market has seen liquidations of around $236 million as Bitcoin has plunged to $29,300 today.

The Crypto Futures Market has seen liquidations of around $236 million in the last 24 hours

A “liquidation” occurs when a futures contract holder’s bet fails and the price moves in the losing direction just enough to drain a certain percentage of the margin (the initial security), causing the derivatives exchange to forcibly close out or “liquidate” the position.

One factor that can significantly increase the risk of a contract being terminated is the degree of influence the investor has chosen. “Leverage” here refers to a loan amount that is often many times the initial position itself.

While leverage means that any profits earned by the holder will be magnified, it is also true that losses incurred will also be magnified to the same extent.

In the crypto market, mass liquidations that take place in a short period of time are not an uncommon sight. The obvious reason behind it is that most of the assets in the sector can show quite heavy volatility at times.

However, there is another factor at play here, and that is the fact that extreme amounts of leverage can also be quite available in the market. Many platforms can easily hand out leverage amounts as high as 50x or even 100x the starting 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 liquidations that have occurred in the crypto futures market over 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 in the last 24 hours. In total, this leverage flush involved the liquidation of over 72,500 traders.

The bulk of these liquidations came in the last twelve hours, which makes sense as most of today’s volatile price action in Bitcoin and other assets has come during this period.

Further details from CoinGlass also show that an extreme majority of liquidations (about 88%) over the past 24 hours 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 recorded a higher number 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 such as today’s are popularly called “squeezes”. In squeezes, sharp price action triggers a large number of contracts to be liquidated, which in turn only drives the price movement further. This intensified price movement naturally ends up causing even more liquidations, and in this way liquidations can collapse like a waterfall.

BTC price

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