A massive $5.64 billion worth of futures positions were liquidated within 24 hours as the bitcoin (BTC) price lost over 17%. Bitcoin lost over 17% with 24 hours as the futures market experienced mass liquidations across the board.
Liquidations happen whenever leveraged futures positions drop to a specific threshold. For instance, a position that is using 10x leverage would liquidate or turn worthless in case the bitcoin price plunges by 5%.
What Caused The Mass Bitcoin Liquidations?
In case the bitcoin futures market is highly overleveraged and crowded, a minor price movement may result in mass liquidations. Based on analysis from Santiment, an address was responsible for the second-biggest bitcoin transaction of 2021.
Over 2,700 BTC were transferred right before the plunge, which was considerably bigger than the 2,000 BTC inflow that was seen in March 2021 when the flagship crypto dropped below $4,000. The analysts stated:
“As we noted yesterday, there was an 11x exchange inflow spike that initiated #Bitcoin’s price correction from its $58.3k #ATH. Further data combing revealed that an address was responsible for the 2nd largest $BTC transaction of the year, an import of 2,700 tokens to the wallet before a quick sell-off. This same address also made a 2,000 $BTC import last March right as the Black Thursday correction took place. In total, it’s made 73 transactions in its one-year existence, for a total of 91,935 $BTC imported, with all tokens moving away within minutes after arrival.”
Total cryptocurrency futures liquidations. Source: Bybt
There is a possibility that a major sell-off in the spot market made the futures market see an intense selling pressure from many long positions getting liquidated.
When BTC started to correct on February 22, the futures funding rate of the dominant crypto was hovering around 0.15% even as it continued to plunge. The trend showed two things: the market remained overheated even as the pullback happened and the overleveraged buyers were aggressively buying every dip.
Market Investment Trends
As a result, the new buyers during the short-term downtrend were rapidly liquidated, causing a brutal cycle of cascading liquidations. But, one pseudonymous trader known as “Byzantine General” said that the latest move is a “coordinated shakeout,” and it is healthy for the market.
Bitcoin price chart with orderbook suite. Source: Byzantine General
If bitcoin plunged on the infamous “black swan” news or some abnormality, that would be a cause for worries. But, the trader/analyst said that the presence of relatively huge buy orders shows that buyers are waiting to step into the market and buy the dip. He highlighted:
“I’m glad I’m seeing signs of this being a coordinated shakeout because that implies that BTC is still bullish and big players just want their bids filled. If it wasn’t premeditated then it would be a lot more scary.”
In the short term, BTC price must defend the $45,000 support zone to make sure that the near-term cycle does not drop into a ‘bear zone.’ Below the support, the possibility of a deep and long correction rapidly surges.