Data shows that a large number of short contracts have seen liquidation in crypto derivatives over the past day following bitcoin's rally above $66,000.
bitcoin Rally Has Caused Large Derivatives-Related Liquidations
According to data from glass coinThe cryptocurrency market as a whole has seen a large amount of liquidation on the derivatives side over the past 24 hours.
“Liquidation” here naturally refers to the process any contract undergoes after accumulating losses of a certain degree, where your platform has to forcibly close it. Below is a table showing the total settlement amount over the last day.
<img decoding="async" class="alignnone size-medium wp-image-300458 aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/05/Bitcoin-Bulls-Crush-93-Million-Crypto-Shorts-as-BTC-Surpasses.png" alt="bitcoin and Cryptocurrency Settlements” width=”552″ height=”298″ data-recalc-dims=”1″/>
Looks like a large amount of contracts have been flushed during this period | Source: CoinGlass
As can be seen, over $135 million worth of cryptocurrency derivatives contracts belonging to over 52,000 traders were settled during this period.
This flow of derivatives has disproportionately affected short holders, as $93 million of their contracts were trapped in it. In more concrete terms, 68.4% of liquidations involved shorts. This is natural because bitcoin and other assets have seen green returns in the last day.
More than $42 million managed to liquidate despite the positive performance, suggesting speculators jumped in with overleveraged positions when the rally occurred. Still, they arrived too late and found the closeout as the early lead cooled.
As is often the case, bitcoin-related contracts contributed the most to this liquidation event, as the heat map below suggests.
<img loading="lazy" decoding="async" class="alignnone size-medium wp-image-300459 aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/05/1715901463_35_Bitcoin-Bulls-Crush-93-Million-Crypto-Shorts-as-BTC-Surpasses.png" alt="bitcoin and Cryptocurrency Settlements” width=”640″ height=”292″ srcset=”https://bitcoinist.com/wp-content/uploads/2024/05/details_ae3c8c.png?w=788 788w, https://technicalterrence.com/wp-content/uploads/2024/05/1715901463_35_Bitcoin-Bulls-Crush-93-Million-Crypto-Shorts-as-BTC-Surpasses.png 640w, https://bitcoinist.com/wp-content/uploads/2024/05/details_ae3c8c.png?w=768 768w, https://bitcoinist.com/wp-content/uploads/2024/05/details_ae3c8c.png?w=750 750w” sizes=”(max-width: 640px) 100vw, 640px” data-recalc-dims=”1″/>
The breakdown of the liquidations by symbol | Source: CoinGlass
btc's $47 million liquidations significantly surpassed those of ethereum this time, whose $16 million figure is more similar to Solana's $12 million stake. This would suggest that the appetite for speculation around eth has been unusually low recently.
A mass liquidation event like today is popularly known as a “squeeze.” During a squeeze, a sharp price swing triggers a large number of liquidations, which only feed back into the price movement, thus unleashing a cascade of liquidations.
The shorts had the most liquidations the previous day, so the event would be called a short squeeze. Historically, liquidations this large have not exactly been rare in the cryptocurrency market.
This is because most currencies can be quite volatile and speculation is rife. Overleveraged positions can be quite risky in this market, so it is not surprising that when volatility like the current one arises, many traders are caught off guard.
Warning signs that liquidations would emerge had already appeared when the rally began yesterday, as bitcoin futures open interest, a measure of the total number of open positions, had shown an increase.
<img loading="lazy" decoding="async" class="alignnone wp-image-300460 size-large aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/05/1715901463_829_Bitcoin-Bulls-Crush-93-Million-Crypto-Shorts-as-BTC-Surpasses.png" alt="bitcoin Open Interest” width=”980″ height=”347″ srcset=”https://bitcoinist.com/wp-content/uploads/2024/05/chart_fc86a7.png?w=1346 1346w, https://bitcoinist.com/wp-content/uploads/2024/05/chart_fc86a7.png?w=640 640w, https://bitcoinist.com/wp-content/uploads/2024/05/chart_fc86a7.png?w=768 768w, https://bitcoinist.com/wp-content/uploads/2024/05/chart_fc86a7.png?w=980 980w, https://bitcoinist.com/wp-content/uploads/2024/05/chart_fc86a7.png?w=750 750w, https://bitcoinist.com/wp-content/uploads/2024/05/chart_fc86a7.png?w=1140 1140w” sizes=”(max-width: 980px) 100vw, 980px” data-recalc-dims=”1″/>
The value of the metric appears to have gone up over the past couple of days | Source: CoinGlass
The chart shows that open interest remains high even after the rally, suggesting that the squeeze has failed to deter speculators.
btc Price
At the time of writing, bitcoin is trading at around $66,000, up 8% in the last seven days.
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The price of the coin seems to have shot up over the last day | Source: BTCUSD on TradingView
Featured image from Shutterstock.com, CoinGlass.com, chart from TradingView.com
