On November 26th, the Bitcoin futures market recorded nearly $ 800 million in long contract liquidation alone. It was the worst day for futures since the March 12 crash.
As a reminder, Bitcoin fell below $ 3,600 on March 12 after liquidating over $ 1 billion worth of futures contracts. The cryptocurrency market has seen a similar crash in the past 24 hours.
The downward trend was set in motion by increased whale sales on Coinbase and Bitfinex. The data shows that most of the liquidations took place in financial futures, which liquidated $ 400 million in two hours.
What does this mean for the Bitcoin price?
Bitcoin price crashed along with the futures market, falling rapidly from $ 19,400 to $ 16,200. The order books of the major stock exchanges were destroyed, there were mass liquidations – and the price continued to fall.
Liquidations occur because traders borrow capital or margin on the futures market to buy or sell Bitcoin. For example, if a trader buys $ 100,000 worth of BTC with 10x leverage, the position will be liquidated if the price drops 10%.
When a position is liquidated, the entire account balance is destroyed. A long contract turns it into a market sell order, which creates more selling pressure.
And that is essentially what happened on November 15th. Liquidations, which totaled $ 1.8 billion during the day, turned into massive selling pressure on Bitcoin.
As a result, both Bitcoin and Ethereum fell significantly as the market collapsed.
Quantitative traders assumed that Bitcoin would return after the cascading liquidations.
Sam Trabucco, quantitative trader at Alameda Research:
„What else? Trading in the momentum y direction is really only half the battle – you also have to get out as we know that after liquidation, movements tend to be reversed. Sure, they don’t actually come back all the way, so it’s not * critical * pinning this down – but you leave $ on the table. „