Data shows the crypto futures market has seen liquidations of about $354 million during the last 24 hours as Bitcoin has displayed wild volatility.
Crypto Futures Market Has Observed Mass Liquidations During Past Day
The “liquidation” of a crypto futures contract happens when the exchange forcibly closes the position due to the holder accumulating losses equal to a specific percentage of the margin (the initial collateral).
A factor that can significantly raise the risk of a contract being liquidated is the “leverage,” which is a loan amount that an investor may choose to take against the margin, and it’s often many times the size of the initial position itself.
The obvious benefit of leverage is that if the bet works out and the price moves in the profit direction, the gains made would be more by the same magnitude as the leverage. However, there is a clear downside to it as well; any losses incurred by the investor would also become multitudes more due to the leverage.
In the crypto market, leverage amounts as high as 50x or even 100x the initial position can be pretty accessible on many derivative platforms. Because of this reason, leveraged positions can often pile up in the market.
Most of the assets in the sector are quite volatile in general, so the risk of getting liquidated with high-leverage positions is even more in this market. As a result, mass liquidation events aren’t an uncommon sight, showing how dangerous high-leverage trading can be for uninformed traders.
A mass liquidation event has also taken place in the crypto market during the past day. Here are the numbers involved in this futures leverage flush:
Looks like a very high amount of liquidations have occurred during the past day | Source: CoinGlass
As you can see above, around $353.8 million in crypto futures contracts have been liquidated during the last 24 hours. In total, about 78,000 traders took the hit in this leverage flush.
The root cause of these large liquidations is the volatility suffered by the price of Bitcoin in the past day. BTC first climbed very rapidly towards the $30,000 mark from mid-$28,000 levels, but a few hours later, the digital asset saw a sharp crash back to values below $28,000.
That wasn’t all as the coin then quickly put together recovery efforts and rose to around the $29,000 level (which it is still currently floating about) again. These sharp fluctuations naturally cleared out the futures market, leading to Bitcoin-associated positions alone seeing $173 million in liquidations.
As the sharpest slice of price action was the one that saw a flash crash, the majority of the liquidations in the past day involved long contracts. Though, 40% of the contracts liquidated were still shorts, meaning that the split wasn’t quite that one-sided, even if it tended towards long domination.
At the time of writing, Bitcoin is trading around $28,900, up 1% in the last week.
The crypto has seen some wild volatility today | Source: BTCUSD on TradingView
Featured image from Pierre Borthiry – Peiobty on Unsplash.com, chart from TradingView.com