According to data, the crypto market has seen over $400 million in liquidations in the previous 24 hours as Bitcoin breaks above $23,000.
A futures contract “liquidates” when losses mount and consume a predetermined portion of the initial margin or collateral (the precise amount depends on the derivatives exchange), forcing the exchange to close the position.
For a variety of causes, mass liquidations in the cryptocurrency market are not unusual. First, most cryptocurrencies (those that are not stablecoins) have considerable volatility, and even hourly changes can be significant at times.
The availability of high levels of leverage on most exchanges is the other factor. Any future user may borrow “leverage” as a loan amount against the margin. Numerous exchanges even provide figures up to 100 times the starting position.
Leverage can greatly boost profits if the gamble succeeds, but it can also greatly increase losses. Because of this and the volatility of even the most valuable coins, like Bitcoin, margin trading in cryptocurrency futures can be highly dangerous.
Almost $405 million has been lost in the crypto futures market in the last 24 hours. Approximately $133 million in liquidations occurred in the last twelve hours alone.
A “squeeze” is an event that occurs when large liquidations occur, such as today. A quick price movement during these events causes numerous contracts to close at once, amplifying the price fluctuation and leading to even more liquidations.
Today’s liquidation squeeze involved just under 100,000 traders, with shorts accounting for more than half of the contracts closed.
This pattern makes sense because the majority of the liquidations would have been caused by coins such as Bitcoin experiencing a rapid surge in price.