Close to $500M cryptocurrency futures positions came up to be liquidated in the last 24 hours as the prices of Bitcoin slid lower than $34,000. Although it has been reported that the liquidations of such major portions took place before Bitcoin dipped, it is still quite an anxious moment for traders throughout.
Why were so many Bitcoin positions liquidated?
Over a day, the Bitcoin price rose by around 6.7% to go from $35,500 to $38,000. This implied that the funding rate of futures started increasing at a steady rate- which further indicated a market that was overleveraged. Throughout the major exchanges, the Bitcoin funding rate for perpetual swap futures raged across 0.07%. Now, one needs to understand that usually the funding rate on average hovers at around 0.01%, which means that the futures market was stupendously overcrowded. And this overcrowding went all the way till $38,000.
With quite a few huge orders coming in the market, the price of Bitcoin started going down. This was further accelerated by the futures market overheating- which resulted in the intensification of correction. Lest it remains unsaid, $500 million futures liquidated isn’t as large a figure as it was the previous week when around $1 billion futures were liquidated on a peak day.
Interestingly, the drop in Bitcoin prices has not led to the futures market’s decline in open interest. And this has brought out notions that there will be a much larger pullback later. Also, there are still several traders who have been betting on the cryptocurrency, so this should be yet another opportunity for a long squeeze. An anonymous trader has spoken about how bitcoin would step inside bear market territory if it fell below $30,000. Precisely why it would be imperative for the cryptocurrency to maintain a sum of $30,000 for macro support.
