Crypto Futures Sees $350M In Liquidations As Bitcoin Dips Below $20k
Data shows the crypto futures market has observed almost $350 million liquidations during the past 24 hours as Bitcoin briefly slipped below $20k.
Around $348 Million In Crypto Futures Got Liquidated In The Last Day
In case anyone 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 first have to put forth some initial collateral, called the margin.
Against this margin, they may choose to take on “leverage,” which is a loan amount often many times the initial 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 bet on, then the profits earned will be more by the same magnitude as the leverage.
However, it’s also true that if the bet doesn’t work out, and the asset moves in the opposite direction, then any losses incurred will also be multitudes more this time.
When such losses pile up and eat away a specific percentage of the margin, the exchange forcibly closes the position. This is precisely what a “liquidation” is.
Now, here is the data for the liquidations in the crypto futures market that took place during the last 24 hours (of all coins):
As you can see above, the crypto futures market has observed nearly $350 million in liquidations in the past day.
Only $71 million of these liquidations occurred during the last twelve hours, suggesting that the bulk of them came in the preceding half-a-day.
75% of the total contracts involved in this futures flush came from longs, a trend that matches up as the main trigger behind the event was the dip in the price of Bitcoin below the $20k level.
Large liquidations like today’s aren’t 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, mean that leveraged trades can be a risky affair for uninformed traders.
At the time of writing, Bitcoin’s price floats around $20.2k, down 5% in the past week. Over the last month, the crypto has shed 5% in value.
The below chart shows the trend in the price of the coin over the past five days.Source