Daily volume of liquidations in the crypto market reaches its maximum since 2021

What’s new? Over the past 24 hours, bitcoin broke through the $100 000 level for the first time in history and set a new record at $104 088 before correcting to $93 000. The sharp drop triggered large-scale liquidations in the crypto market: the total daily volume of liquidated positions on centralized exchanges (CEXs) amounted to $1,1 billion, a record since December 2021. Of this amount, $815 million was for long positions, while $280 million was for short positions.

Material by The Block

What else is known? Bitcoin took the lead in total liquidations, accounting for $560 million. After the fall, bitcoin has partially recovered and at the time of writing is trading at $97 923 with a capitalization of $1,942 trillion or 54,81% of the total crypto market capitalization.

Liquidation means that a trader’s position is forcibly closed due to significant losses or lack of sufficient margin to meet maintenance requirements.

As noted by BTC Markets crypto analyst Rachel Lucas in a commentary on The Block, the large-scale liquidations were led by a sell-off targeting pockets of liquidity, areas of accumulation of orders to buy/sell an asset that form in areas of support and resistance.

She explained that market makers and other large players often use such conditions to their advantage: this time, they were able to drive the bitcoin price above $100 000, which attracted retail traders, and then move into a sell-off that depressed the exchange rate and triggered the liquidation of leveraged positions on both sides — both long and short.

According to Lucas, the situation was exacerbated by the high leverage of retail traders. Many of them succumbed to the fear of missing out (FOMO) and started opening long positions when BTC value was above $100 000, after which the big players made a strategic sell-off.

In general, such liquidations tend to reduce inflated funding rates and leverage in the market, which may lead to its stabilization after the correction with the possibility of further recovery.