Crypto Shorts See $240M Rising As Bitcoin Resurfaces Above $30k
Data shows that the crypto futures market has taken a beating at $380 million in the past day as Bitcoin has recovered to above $30k. Of this amount, liquidations of $240 million belong to short traders.
Crypto Shorts Observe $240 Million in Liquidations in the Last 24 Hours
If anyone doesn’t know what “liquidations” are, it’s best to first take a brief look at how margin trading works in the crypto futures market.
For example, when an investor opens a long or short Bitcoin contract on a derivatives exchange, they must first put forward some collateral called the “margin.” This margin can be in BTC, another currency or even fiat.
Against this margin, the investor can choose to take “leverage”, an amount borrowed that is often many times higher than the original position.
The advantage of leverage is that if the price moves in the direction the contract is betting in, the profit earned is now many times higher.
Related literature | Bitcoin Massacre Awakens Sleepy Giant As Spot Volumes Grow
However, it is also true that any losses will also be much greater. When such losses gobble up a specific portion of the margin, the exchange forcibly closes the Bitcoin position.
This is what a liquidation is. The table below shows the data for liquidations in the crypto market over the past day.
It appears that liquidations on the futures market have accumulated about $380 million in the last 24 hours | Source: CoinGlass
As you can see above, the crypto market has gone through heavy liquidations in the past day, with $184 million in the last 12 hours alone.
The majority of the liquidations came from short traders, which makes sense as coins such as Bitcoin have seen a major rally in price today.
About 63% of the liquidations involved shorts | Source: CoinGlass
Looking at the data above, it appears that more than $240 million liquidations are short traders that have been flushed.
Related literature | Bitcoin Crash 20% in 5 Days. Why is it the golden time to enter the crypto market?
Major liquidations like today’s are not particularly uncommon in the crypto market. There are a number of reasons for this.
The first is the high volatility of coins. Even the largest coins such as Bitcoin and Ethereum can observe quite large swings in a short period of time.
The other contributing factor is the fact that many derivatives exchanges offer leverage of as much as 100x.
Uninformed traders who choose such large positions in a volatile market like crypto significantly increase the risk of liquidations.
At the time of writing, Bitcoin’s price is hovering around $30.5k, down 15% from the past week.
The price of the coin already seems to have seen a rebound from the crash | Source: BTCUSD on TradingView
Featured image from Unsplash.com, chart from TradingView.com