The data shows that a large number of short positions in the Bitcoin futures market were liquidated the day before, as BTC topped $19,000.
$93 million Bitcoin shorts were wiped out in just 1 hour
According to the data of the on-chain analysis company glass node, short sales have skyrocketed in recent days. A “settlement” takes place when a derivatives exchange has to forcibly close out a contract in the Bitcoin futures market.
Contracts are typically liquidated when a certain percentage of the margin, the amount of collateral the holder had to put up to open the position, is lost due to the price of BTC moving in the opposite direction of the investor’s bet.
In the crypto futures market, large selloffs occurring at once are not uncommon for a couple of reasons. First, most assets in the industry are often highly volatile, so sudden price fluctuations can occur without warning.
And second, many derivatives exchanges offer leverage (a loan amount taken against margin) as high as 100x on the original position. The high leverage accessible in a volatile environment such as this results in high risk of liquidation of positions.
Now, the relevant indicator here is “total futures liquidations”, which tracks the total number of short and long liquidations that are currently taking place in the Bitcoin futures market.
Here’s a graph 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 have mainly involved short contracts in the past few days. This trend makes sense, as a strong upward movement in price was the trigger for these selloffs.
During the FTX crash in November, which saw the opposite type of price movement, a large number of long positions were removed, as can be seen on the chart.
Usually, a large and fast enough movement in price can trigger simultaneous selloffs that only fuel said price movement. This amplified price movement then liquidates even more contracts, thus cascading the liquidations. A massive liquidation event like this is popularly known as “squeeze.”
Glassnode notes that $93 million worth of short contracts were scrapped in just one hour over the last day. These quick selloffs suggest that Bitcoin’s rally triggered a small contraction in the futures market.
The price has now spiked further after this squeeze, as is often the case, and BTC is now above $19,000 for the first time since the crash of crypto exchange FTX.
Bitcoin price
At the time of writing, Bitcoin is trading around $19,000, up 13% in the last 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
