The data shows that the cryptocurrency futures market recorded liquidations of nearly $300 million in the past day as the price of Bitcoin fell below $26,000.
Cryptocurrency futures market liquidations escalated as bitcoin and others collapsed
A futures contract is said to be “liquidated” when the derivatives exchange on which the contract was opened aggressively closes the position. The platform generally does this when the contract has accumulated enough losses to remove a specified percentage of the margin (the initial collateral).
There are two factors that can significantly increase the risk of contract liquidation. The first is, of course, the volatility of the asset for which it is the center. In the cryptocurrency market, most of the currencies show a lot of volatility, so it is difficult to predict how the market will progress.
The other relevant factor here is leverage, which is the amount of loan an investor may choose to accept in exchange for margin. Leverage is usually several times the initial position itself, the main advantage of which is that any profits made become much larger.
Obviously there is also the issue that any losses incurred will also be more of the same factor. Many crypto derivatives exchanges offer easy access to amounts of money up to 100 times the position, so the market could see a significant amount of leverage build up at certain points.
This high leverage environment combined with the general volatility of currencies often leads to mass liquidation events that often occur in the digital asset futures market.
Another such event occurred over the past day. Below is a table showing the relevant data regarding this leverage flow:
Looks like a huge amount of liquidations have been observed in the last 24 hours | Source: CoinGlass
As you can see above, there were a total of about $296 million in cryptocurrency liquidations over the last day. Only about $16 million of these liquidations occurred in the last 12 hours, however, which indicates that the previous 12 hour period saw the bulk of the inflow.
The extreme volatility in the prices of assets such as Bitcoin came during this half-day period, so it would make sense that futures liquidations would also be contained within it.
The fluctuations in the past day were almost to the downside, due to the news of the SEC suing Binance and its CEO. BTC did notice a crash below the $26,000 level during this volatile event, so it is not surprising that the vast majority of contracts that cleared ($271 million) were long positions.
Below is another table that breaks down these qualifiers in terms of codes. From that, it is clear that bitcoin futures alone saw about $111 million in liquidations in the last 24 hours, which is far more than any other coin.
BTC seems to be at the top of the liquidations list | Source: CoinGlass
BTC price
At the time of writing, Bitcoin was trading at around $25,700, down 8% in the past week.
BTC has crashed down in the past day | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, chart from TradingView.com