Risk Soars: Major Crypto Liquidation Wave Hits Traders Overnight

A significant surge in crypto liquidations has highlighted an increase in leverage among traders in recent months. A report from Glassnode and Fasanara reveals that the daily liquidations have escalated, making sell-offs more severe. This trend was starkly evident on October 10, when a substantial amount of long positions were liquidated as Bitcoin experienced a steep price drop.

Key Takeaways

Recent months have seen a rise in leverage among crypto traders.
Daily liquidations have surged, indicating heightened volatility and risk.
On October 10, a massive $640 million in long positions were liquidated during a Bitcoin price drop.
The open interest in the futures market has reached record highs.
Bitcoin’s market capitalization has significantly increased, reflecting its growing dominance in the crypto space.

Crypto

Introduction to Liquidation Trends

The increasing trend of traders using leverage has led to a substantial uptick in crypto liquidations. According to a recent report from Glassnode and Fasanara, average daily losses have soared from approximately $28 million in long positions and $15 million in shorts in previous cycles to around $68 million in longs and $45 million in shorts currently. This change indicates that single sell-offs have become much more intense.

A Sudden Shock on Black Friday

On October 10, a distinct shift was observed when over $640 million per hour in long positions were liquidated as Bitcoin's price dropped from $121,000 to $102,000. Within a span of less than 12 hours, open interest saw a sharp decline of about 22%, plummeting from nearly $50 billion to $39 billion. This rapid movement was one of the swiftest deleveraging events recorded in Bitcoin's history, as noted by Glassnode.

Trading Activity
Trading across the Bitcoin futures market. Source: Glassnode

Record-Breaking Futures Activity

Futures markets have experienced remarkable growth, with open interest rising to a record $68 billion and daily turnover exceeding $69 billion in mid-October. Perpetual contracts now make up over 90% of this trading activity, thereby concentrating risk in instruments that are re-evaluated continuously. The average daily futures liquidations of $68 million in long positions and $45 million in shorts emphasize the high stakes involved during significant market shifts.

Reports indicate that spot trading is also witnessing increased activity, with Bitcoin's spot volume escalating to between $8 billion and $22 billion daily, roughly double the volume seen during the last cycle.

Current BTC Price Chart
BTCUSD currently trading at $92,390. Chart: TradingView

During the October 10 crash, the hourly spot volume surged to $7.3 billion as traders opted to buy the dip instead of retreating. Such market behavior has altered the dynamics of price discovery. Monthly inflows into Bitcoin have fluctuated between $40 billion and $190 billion, raising the realized market capitalization to a historic $1.1 trillion. Since the low in November 2022, around $730 billion has entered the network, surpassing the combined totals of previous cycles.

Consequently, Bitcoin's proportion of the overall crypto market capitalization has risen from 38% at the end of 2022 to 58% today, according to the findings of the report.

Moreover, another noteworthy statistic reveals that the Bitcoin network has handled nearly $7 trillion in transfers over the past 90 days, outpacing major card networks in that timeframe. This has led some participants to perceive Bitcoin not only as a store of value but as a vital settlement framework in the evolving financial landscape.

As of the writing of this article, Bitcoin was trading at $93,165, reflecting gains of 6.5% and almost 7% over the daily and weekly periods.

Featured image from Unsplash, chart from TradingView