Data shows that a large number of short positions have liquidated in the Bitcoin futures market over the past day as BTC pushes above $19,000.
$93 million Bitcoin shorts were wiped out in just 1 hour
According to data from the on-chain analytics company Glasnode, short liquidations have peaked over the past day. A “liquidationoccurs when a derivatives exchange is forced to close a contract on the Bitcoin futures market.
Contracts are usually liquidated when a certain percentage of the margin – the amount of collateral the holder had to deposit to open the position – is lost due to the BTC price moving in the opposite direction to the investor’s bet.
In the crypto futures market, it is not uncommon for large liquidations to occur simultaneously for a number of reasons. First, most assets in the sector are generally highly volatile, allowing for sudden price swings without warning.
And second, many derivatives exchanges offer lever (a loan amount against the margin) up to 100x in the original position. Because high leverage is accessible in a volatile environment like this, there is a high risk of positions being liquidated.
Now, the relevant indicator here is the “total futures liquidations”, which tracks the total amount of both short and long liquidations currently taking place in the Bitcoin futures market.
Here’s a chart showing the trend 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 liquidations over the past few days have mainly involved short contracts. This trend makes sense as a sharp upward move in price triggered these liquidations.
During the FTX crash in November, where the opposite price movement was observed, a large number of longs were wiped out instead, as can be seen on the chart.
Usually, a fast enough movement in the price can trigger simultaneous massive liquidations that will only further fuel the price movement. This amplified price movement then liquidates even more contracts, and in this way liquidations run together. A mass liquidation event such as this is popularly referred to as a “squeeze.”
Glassnode notes that $93 million in short contracts washed away in just one hour in the past day. These rapid liquidations suggest that the Bitcoin rally caused short-term pressure on the futures market.
The price has now skyrocketed even more after this pressure, as is generally the case, and BTC is now above $19,000 for the first time since the collapse of the FTX crypto exchange.
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 image of Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com