As the value of Bitcoin dropped below $43,000, crypto worth $800 million was liquidated. Almost 90% of the losses were incurred by traders in long positions, CoinDesk reported.
In Asian hours this morning, Bitcoin fell to $42,500 after trading above $47,000 yesterday. On BTC-tracked futures alone, traders took on $317 million of losses. 87% of those positions were betting on upward price movements.
Liquidations are a safety mechanism
Liquidations happen when an exchange automatically closes a leveraged position as a safety mechanism when the trader loses part of or his whole initial margin. This rarely happens in spot trading, where traders own the actual assets. It’s common in futures trading, which only tracks asset prices.
Altcoin markets also plummet
The decline in Bitcoin prices impacted altcoins as well. In the last 24 hours, more than 200,000 positions were liquidated. Most losses came during the U.S. hours.
Long positions, where traders bet on a price increase, sustained more than 87% of the $800 million in liquidations. The biggest liquidations were registered on crypto exchange OKEx – $241 million, followed by Binance with $236 million.
Ether futures liquidations exceed $164M
Futures on Ethereum’s native currency saw over $164 million in liquidations. The losses for altcoin traders were relatively smaller. XRP and Solana traders lost $16 million and $18 million respectively.
Open interest fell 8%
Open interest across crypto futures fell 8%, indicating that traders exited their positions with view to falling markets. Open interest is the total number of unsettled futures or derivatives.
US Fed meeting provoked plunge
The markets declined soon after the minutes of the December meeting of the U.S. Federal Reserve (Fed) were released. The Fed announced a record asset-buying program in 2020 when the pandemic first broke out. On Wednesday, they revealed plans to start reducing the $8.3 trillion balance sheet in 2022 gradually. Then, the flagship crypto tumbled to its lowest price in a month.
The impact of inflation fears
Bitcoin prices rallied as more and more investors wagered that the $4 trillion+ printed by the Fed to support the struggling economy and markets would result in higher inflation rates and that Bitcoin could serve as a store of value. Bitcoin faces downward pressure with efforts to shrink the balance sheet. According to the minutes of the meeting:
Some participants judged that a significant amount of balance sheet shrinkage could be appropriate over the normalization process, especially in light of abundant liquidity in money markets.
Contributors
