Data Cryptocurrency’s significant volatility triggers a liquidation loss of $256 million.

Data Cryptocurrency's volatile nature causes a $256 million liquidation loss.

Author: Krisztian Sandor, CoinDesk; Translation: Song Xue, LianGuai

According to Coinglass data, the rapid plunge and rebound of cryptocurrency prices this week have caused traders to suffer losses, resulting in liquidation losses of $256 million in the past two days.

The first wave of liquidation occurred on Monday when the market fell due to concerns that FTX might sell its cryptocurrency assets. Bitcoin (BTC) fell below $25,000 for the first time since mid-June, and Ethereum (ETH) reached its lowest price in six months. Other major cryptocurrencies also fell by 5%-10%.

According to Coinglass data, the price movement on that day caused a liquidation of $167 million, with 90% being leveraged long positions. This was the largest leverage exodus in a day since the panic action on August 17, when Bitcoin plummeted from around $29,000 to below $25,000 in a few hours.

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After the sell-off on Monday, traders began to build positions, expecting further price declines. However, the sudden short squeeze that started on Monday night boosted the prices of digital assets, pushing Bitcoin up by more than 4% and returning above $26,000 earlier on Tuesday. This rise also eliminated leveraged positions worth $89 million, mainly short positions.

Large-scale liquidation events often signal local bottoms or tops in prices, as the rapid fluctuations in prices force derivative traders to unwind directional bets. Liquidation occurs when exchanges close leveraged positions because traders fail to meet the requirements of adding sufficient funds to maintain the positions, resulting in partial or total loss of traders’ initial capital (margin).

David Lawant, Head of Research at institutional exchange FalconX, wrote in a market update that after the recent large-scale liquidation events, open interest contracts (i.e., the total number of outstanding options and futures contracts held by market participants) have significantly decreased. The report pointed out that BTC and ETH derivative open interest contracts on major exchanges have dropped by about 38% from this year’s peak, reaching levels close to those in March.

BTC and ETH Open Interest Contracts (FalconX)

Lawant said, “The strong impact of open interest contracts over the past six months indicates that liquidation may not be as evident in spot price trends.”

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