Data shows liquidations in the crypto futures market have amounted to around $500 million over the past day as the price of Bitcoin plunges below $36k.
About $500 Million Liquidated In Crypto Futures Over Last 24 Hours
In case anyone’s not aware of what “liquidations” are, it’s best to first see a basic overview of crypto margin trading.
When an investor opens a Bitcoin futures contract, they need to put down a minimum collateral, which is called the “margin.”
Against the margin, traders can decide to take on leverage. The leverage is a loan equal to many times their initial position.
The benefit of leverage is that investors can earn multitudes more profit if the Bitcoin price moves in the direction they bet on.
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However, it also means that their losses are also magnified by the same amount as the leverage. When these losses eat up a specific percentage of the margin, the exchange forcefully closes the position.
This is what a liquidation is. The below table shows the data for crypto liquidations that occurred over the past day.
It seems like a large amount of liquidations have taken place today | Source: CoinGlass
As you can see above, almost $500 million in crypto futures was liquidated over the last 24 hours. $105 million of this got flushed out in the past four hours alone.
Since these liquidations were triggered by the price plummeting downwards, the majority of contracts involved were longs.
Mass liquidations like this one aren’t an uncommon sight in the crypto market. There are a couple of reasons behind this.
The first, more important reason is that cryptocurrencies are usually very volatile, sometimes jumping even as much as 10% in the matter of a few hours.
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The other is the fact that many exchanges offer even as high as 100x leverage. High leverage naturally increases the risk of liquidation.
These factors together can make up an environment where uninformed margin trading can prove to be quite risky.
At the time of writing, Bitcoin’s price floats around $35.8k, down 8% in the last seven days. Over the past month, the crypto has lost 21% in value.
Here is a chart that shows the trend in the price of the coin over the last five days.
The price of BTC seems to have crashed down over the last day | Source: BTCUSD on TradingView
Yesterday, the price looked to be recovering a bit as it approached the $40k level, but it wasn’t long before it plunged down all the way to below the $36k level.
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com