June 4, 2023

Crypto futures markets have observed liquidations of nearly $350 million in the past 24 hours as Bitcoin briefly dipped below $20,000, data showed.

About $348M in Crypto Futures Liquidated on Last Day

If anyone doesn’t know what “liquidation” is, it’s best to have a basic understanding of how margin trading works before diving into the data.

Whenever an investor opens a crypto futures trading contract on a derivatives exchange, they first have to put up some initial collateral, known as margin.

Against this margin, they may choose to take on “leverage,” which is a loan amount that is often many times the initial position.

The advantage of using leverage is that if the price of the asset the contract is targeting eventually moves in the direction the investor is betting on, the profit earned will be the same as the leverage.

However, if the bet doesn’t pan out and the asset moves in the opposite direction, any losses incurred this time around will also be more.

When such losses pile up and eat up a certain percentage of margin, exchanges force liquidations. This is exactly what “liquidation” means.

Now, here are the data on the liquidation of the crypto futures market that happened in the past 24 hours (all tokens):

Crypto Bitcoin Futures Clearing

Looks like the market saw large amounts being flushed today | Source: CoinGlass

As you can see above, the crypto futures market observed almost $350 million in liquidations over the past day.

Only $71 million of these liquidations occurred in the past 12 hours, suggesting that most of them occurred in the first half of the day.

Seventy-five percent of the total contracts involved in this futures flush came from longs, a trend that matched the main trigger behind the event, which was the price of Bitcoin falling below the $20,000 level.

Mass liquidations like today’s are not uncommon in the cryptocurrency market. The general high volatility of most tokens, coupled with the easy access to leverage options of up to 100x on many exchanges, means that leveraged trading can be a risky business for uninformed traders.

BTC price

At the time of writing, Bitcoin is trading around $20,200, down 5% over the past week. The cryptocurrency has lost 5% in value over the past month.

The chart below shows the trend of the coin’s price over the past five days.

Bitcoin Crypto Price Chart

The value of BTC seems to have plunged down over the last day | Source: BTCUSD on TradingView
Featured image from Dmitry Demidko on Unsplash.com, chart from TradingView.com

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