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- 1 Crypto exchanges observed liquidations of approximately $140 million in a trading window of 24 hours on January 22, 2024.
- 2 Long position holders lost approximately $120 million and losses of short sellers account for approximately $18 million.
- 3 Traders also lost close to $30 million from leveraged Bitcoin positions and $24 million from long positions.
The amount of liquidation taken from Coinglass represented that crypto markets have observed a liquidation of $138.57 million over a 24-hour trading window. It has forced market traders to consider the possible reasons for sudden liquidation in such huge amounts.
Liquidations are the closing of leverage positions on multiple crypto exchanges when the market moves in other directions. Stated differently, when the value of assets significantly falls below a specific threshold and the exchange sells off those assets to pay for losses, it is known as an event of liquidation.
Detailed Market Analysis
As per the data stated at Coinglass, the 24-hour volume showed total liquidations of $138.57 million. Out of which, $120.17 million accounted for long positions and $18.4 million accounted for short positions.
Bitcoin and Ethereum are the most affected by the wave of liquidation and Bitcoin is leading the pack. On the previous day, Bitcoin recorded total liquidations of $25.68 million, attributing $6.39 million to long traders and $2.98 million to short traders.
It has caused a decrease in the prices of all the major cryptocurrencies, including Bitcoin and Ethereum and the newly developed crypto MANTA tokens also had to go through the fall.
Causes for the Liquidations
Some of the probable reasons for sudden liquidations include an increase in volatility, the introduction of ETPs (exchange-traded products), and SEC approval of spot ETFs.
Primarily, the increase in volatility is the result of the movement of Bitcoin with the introduction of ETFs and ETPs. The Bitcoin funds have moved from BTC to institutional products or alternative products.
After the SEC’s approval of Bitcoin ETFs, exchange-traded products have seen extended outflows from other jurisdictions. Bitcoin exchange-traded products in Europe and Canada observed net outflows of around 5,000 BTC. There are more than 20 spot Bitcoin ETPs in Canada.
While the European ETPs are focused institutionally, which suggests that institutions are responsible for outflows into US ETF products. Jacobi Asset Management is the only company that offers European Bitcoin products structured as ETFs. It requires a minimum investment of $100,000.
As per Glassnode, derivatives leverage and spot profit-taking led to a drop in Bitcoin prices. However, various measures in both the on-chain and derivatives spaces indicate that a significant proportion of Bitcoin investors have considered the ETF approval as a sell-the-news opportunity.
Other cryptocurrencies that witnessed liquidations include Solana, with a liquidation of around $6.5 million. Exchanges that have primarily executed liquidation activities include Binance, OKX, and Bybit.
Amid all these liquidation activities, Bitcoin futures have seen a surge of around 2% in open interest during a similar period.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
