The crypto market has witnessed a significant drop in prices in the past two days, breaking the period of low volatility that lasted for weeks. Bitcoin, the leading cryptocurrency, slumped to just under $28,500 late on Wednesday, marking one of the largest two-day price drops since mid-June. Bitcoin’s weakness caused other major cryptocurrencies, such as ether, XRP and solana (SOL) to follow suit, falling as much as 5%.
The price decline was accompanied by a surge in liquidations on futures contracts, which are agreements to buy or sell an asset at a predetermined price and date. According to Coinglass, a platform that tracks liquidation data, liquidations on futures tracking major tokens crossed the $160 million mark in the past 24 hours, pushing to over $320 million in losses since the start of this week.
Long trades account for 90% of total liquidations
Liquidation occurs when an exchange forcefully closes a trader’s leveraged position due to a partial or total loss of the trader’s initial margin. This happens when a trader is unable to meet the margin requirements for a leveraged position or fails to have sufficient funds to keep the trade open. Leveraged trading allows traders to amplify their profits or losses by borrowing funds from the exchange or other traders.
Coinglass data shows that long trades, or bets on higher prices, accounted for 90% of the total liquidations. This means that most traders were caught off guard by the sudden price drop and had to close their positions at a loss. Bitcoin futures racked up nearly $50 million in losses, followed by ether at $22 million and litecoin (LTC) at $5 million. Traders of bitcoin cash (BCH), solana, and XRP took on nearly $4.5 million in losses apiece.
Large liquidations can signal the local top or bottom of a price move, which may allow traders to position themselves accordingly. However, liquidations can also trigger a cascade of further price movements, as exchanges adjust their order books and margin requirements to maintain liquidity and stability.
Open interest rises slightly as traders open more positions
Open interest, or the number of unsettled contracts, rose 1.16%, meaning traders opened more positions but ultimately used significantly less leverage – suggesting less risk-on sentiment. Open interest is a measure of market activity and liquidity, as it indicates how much money is locked in futures contracts.
A high open interest can indicate that traders are confident in their positions and expect the price to move in their favor. A low open interest can indicate that traders are uncertain or cautious about the market direction and prefer to close their positions or reduce their exposure.
The open interest for bitcoin futures on major exchanges was around $11 billion as of Thursday morning, according to Bybt.com. The open interest for ether futures was around $4 billion.
QCP Capital expects prices to fall lower in the absence of catalysts
Meanwhile, trading firm QCP Capital said in a Telegram broadcast earlier this week that it expected prices to gradually fall lower in the immediate absence of market catalysts. It added that price levels of between $24,000 to $26,000 for bitcoin could be expected in the coming months.
QCP Capital also noted that the crypto market was facing regulatory headwinds from various countries, such as China, India, and the US. The firm said that these factors could dampen the market sentiment and demand for cryptocurrencies.
However, QCP Capital also said that there were some positive developments that could support the market in the long term, such as the growing adoption of crypto by institutional investors and mainstream companies. The firm cited examples such as MicroStrategy’s purchase of more bitcoin, PayPal’s expansion of its crypto services, and Twitter’s integration of bitcoin tipping.
