The contemporary landscape of cryptocurrency derivatives has endured a sweeping liquidation event in the offing, as Bitcoin, in concert with various other digital assets, has witnessed a steep downturn.
Recent Crypto Market Witnessed A Long Squeeze
As per data extracted from CoinGlass, there has been an enormous liquidation of contracts in the previous 24 hours. A “liquidated” position is the terminology used when an exchange chooses to abruptly close it. This course of action is typically undertaken when the losses incurred by the holder exceed a predetermined limitation.
Liquidation can be triggered by two leading causative factors. The initial factor revolves around volatility. An exceedingly volatile asset can exhibit wild oscillations in both directions, making it challenging to speculate its trajectory. Although the element of volatility is beyond the investor’s purview, the second factor, namely leverage, falls within their control. Here, “leverage” alludes to a loan amount that an investor can elect to receive against their initial collateral. Leverage can exponentially amplify the profits reaped by the holder, but the reverse is equally true for losses, thereby significantly elevating the risk of liquidation. In the domain of cryptocurrency, these factors always loom large as digital currencies often display volatile swings within narrow timeframes, with a multitude of speculators willing to make high-stakes bets. Consequently, these conditions create the perfect storm for mass liquidation events, colloquially known as squeezes, which are frequently witnessed. One such event transpired within the last 24 hours, as demonstrated in the table below.
From CoinGlass’ records, there appears to be a substantial skew towards the liquidation of long contracts during this period. It is evident that liquidations associated with cryptocurrency totalled an astounding $904 million within the past day. Of this figure, $811 million, which accounts for nearly 90% of the total, implicated long contract holders exclusively. The substantial bias towards those speculating a bullish outcome can be attributed to the sharp decline in Bitcoin and other assets during this time.
A heatmap presenting a breakdown of liquidations by symbol reveals that Bitcoin accounted for the most significant portion of liquidations at $261 million. Ethereum (ETH) followed in second place with $113 million, and Solana (SOL) came third at $39 million. While XRP (XRP) boasts a larger market capitalisation than SOL, its performance was comparatively lacklustre, possibly due to SOL’s larger price depreciation.
Interestingly, despite the recent long squeeze, exchanges have not been predominantly geared towards long positions, as analytics firm Glassnode highlighted in a recent post.
Bitcoin’s Latest Price
At the point of writing, Bitcoin is currently valued at approximately $100,400, marking a more than 4% drop over the past week.
FAQs
1. What does it mean for a position to be “liquidated”?
A “liquidated” position refers to a situation where an exchange decides to forcibly close it due to the holder amassing losses that surpass a certain threshold.
2. What does “leverage” refer to in the context of cryptocurrencies?
In the context of cryptocurrencies, “leverage” refers to a loan amount that an investor can choose to take against their initial collateral. While it can enhance profits, it can also magnify losses, thereby increasing the likelihood of liquidation.
3. Why have recent cryptocurrency liquidations leaned heavily towards long contracts?
The recent influx of liquidation events pertaining to long contracts can be attributed to the significant downturn in Bitcoin and other assets. During these periods of market volatility, traders betting on a bullish outcome are more likely to experience losses, leading to an increase in liquidations.
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