Data shows a large amount of shorts have been liquidated in the Bitcoin futures market in the past day as BTC pushed above $19,000.
$93 Million Bitcoin Shorts Cleared In Just 1 Hour
As data from on-chain analytics companies Glassnode, short liquidations have spiked in the past days. “Liquidation” occurs when derivatives exchanges have to forcibly close contracts in the Bitcoin futures market.
Contracts usually liquidate when a certain percentage of the margin – the amount of collateral that the holder must put up to open the position, lost because the price of BTC moves opposite to the direction of the investor’s bet.
In the crypto futures market, large liquidations occurring simultaneously are not uncommon occurrences for several reasons. First, most assets in the sector are highly volatile, so price changes can occur without warning.
And secondly, many derivatives exchanges offer leverage (the amount of the loan taken from the margin) up to 100x on the original position. The high leverage that can be accessed in a volatile environment like this poses the risk of liquidated positions.
Currently, the relevant indicator here is “total futures liquidation,” which tracks the total number of short and long liquidations that are taking place in the Bitcoin futures market today.
Here’s a chart showing trends in this metric over the past few months:
The value of the metric seems to have been deep red in recent days | Source: Glassnode on Twitter
As shown in the chart above, Bitcoin futures liquidation has mostly involved short contracts in the past few days. This trend makes sense, because a sharp increase in prices is the trigger for such liquidation.
During the FTX crash back in November, which observed the opposite kind of price movement, a large number of longs were removed instead, as can be seen from the chart.
Usually, a large enough quick move in price can trigger simultaneous mass liquidations that only feed said price move further. This amplified price move then frees up more contracts, and in this way, the liquidation cascades together. Mass liquidation events like this are called “blackmail”.
Glassnode noted that $93 million worth of short contracts were liquidated in just one hour over the past day. This rapid liquidation suggests the Bitcoin rally triggered a short run in the futures market.
The price has now risen further below that, like most, and BTC is now above $19,000 for the first time since the collapse of the crypto exchange FTX.
BTC price
At the time of writing, Bitcoin is trading around $19,000, up 13% over the past week.
Looks like BTC has climbed up in the last couple of days | Source: BTCUSD on TradingView
Featured images from Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com