Almost USD 4bn in trading positions has been liquidated in the past 24 hours as overly optimistic traders seem not willing to learn after they lost almost USD 2bn just a week ago. (Updated at 15:20 UTC: updated with the latest market data.)
Today, they lost USD 2.3bn (over 90% – long positions) in one hour alone, while USD 879m in bitcoin (BTC) positions has been liquidated, per bybt.com. Liquidations started earlier today as BTC price dropped, prompting liquidations and the further sell-off. It accelerated later, pushing the price of BTC below the USD 51,000 level, before it rebounded quickly to almost USD 54,000.
At the time of writing (15:08 UTC), BTC trades at USD 53,827 and is down by more than 6% in a day, trimming its weekly gains to 11%. BTC reached its new all-time high of USD 58,641 (per Coingecko.com) this past Sunday.
Other major coins from the top 10 club are down by 5%-11% in a day, except XRP that suddenly rallied today but has also corrected gains.
Meanwhile, similarly to the last week, major exchange Binance leads again – around 40% of the total liquidations in the past hour happened on this platform again.
As reported, long liquidations have become more numerous over the past month or so. With bitcoin (and other coins) breaking all-time highs nearly every passing week, some traders may feel unable to gain significant exposure without margin trading.
Liquidations:
However, a growing number of traders can’t afford to maintain their leveraged positions in the event of dips. Hence, the growing frequency of big liquidations.
As reported, leveraged trading is the biggest risk to the crypto market in terms of what could cause “something to pop down the line,” according to Joey Krug, Co-chief Investment Officer at US-based major crypto investment company Pantera Capital.
He warned that some people get complacent when they realize crypto is here to stay. As a result, they lever up on it, thinking it can’t go down that much because institutions will swoop in and buy, saving the day. But eventually, when the lid blows off and bids are not there, liquidations of levered longs will drive the price down as just happened again.
Leveraged trading refers to borrowing funds so that you can take a larger position than you would be able to with your existing funds so that you can potentially generate a higher profit. However, while margin trading enables traders to amplify their returns, it can also lead to increased losses and liquidations, which is why experienced traders tend to advise newcomers to stay away from leveraged trading.
While BTC has roughly tripled in the past three months, its liquidity has deteriorated, according to Nikolaos Panigirtzoglou, a strategist at JPMorgan Chase & Co.
“Market liquidity is currently much lower for Bitcoin than in gold or the S&P 500, which implies that even small flows can have a large price impact,” he wrote in a note on Friday, as reported by Bloomberg.
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Reactions:
If you need a reason for today’s #bitcoin crash, the answer is simple: Leverage. As price rolled over, levered trad… https://t.co/IzRo9F6G1p
— Alex Krüger (@krugermacro)
I actually love that #Bitcoin touched those lower levels!!! … that is going to satisfy the market and maybe allow… https://t.co/gHu0WTwFAb
— Kevin Svenson (@KevinSvenson_)
Retest of the prior breakout is all this is until I change my mind. So far the value area is great support.
— Nick Core (@Crypto_Core)
Another garden variety bull market correction… being bought with ferocity by bulls.
— Vijay Boyapati (@real_vijay)
@cointradernik Is this just normal now?
— Low IQ ️ (@CryptoChillDood)
#BTC updates from earlier this morning: expecting a further retrace to ~53k before it should regain strength for mo… https://t.co/uzGu1XrlxI
— Crypto_Ed_NL (@Crypto_Ed_NL)
Ideally leverage is supposed to amplify your positive expectancy asymmetrical trades.
— Loma (@LomahCrypto)
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Learn more:
– What Are Leveraged Tokens And Should You Trade Them?
– Cryptoasset Margin Trading: How Safe is it?
– 7 Ways to Short Crypto
– Crypto Traders Warn Newbies About New & Super Risky Binance Feature
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(Updated at 11:05 UTC with an infographic. Updated at 12:45 PM UTC with a comment from Nikolaos Panigirtzoglou.)