Bitcoin Futures Liquidations Hit $58.8 Million: Long Positions Take the Brunt of the Hit

In the past 24 hours, Bitcoin’s price tumbled by 10%, but the amount of liquidations that occurred in the futures market was actually quite small compared to what we’ve seen during recent bouts of volatility.

Futures worth about $58.8 million got dumped, and the majority were long positions. That said, the overall vibe in the market right now is kind of concerning. We are seeing some liquidations; it’s just that by some measures, and especially in the context of how much price went down, today’s were not too bad. This suggests to me at least that the selling is kind of orderly and controlled.

From the entire $58.8 million in Bitcoin futures liquidations, a big chunk, to the tune of $42.1 million, came from long positions. Shorts, on the other hand, accounted for a mere $16.6 million. That 73% portion of the liquidations coming from long traders signals that those traders were in the Bitcoin betting-on-price-rise camp. And if you take it a step further, the picture is quite a stable-coin portion, too, for a Bitcoin market that is betting on a not-so-bearish landscape. Indeed, on the whole, it does not seem that the Bitcoin market is not moving toward a bearish mode.

This distribution of liquidations shows that, while Bitcoin’s future seemed bright to traders, they did not overly trust it. Although the overall positioning in the futures market was bullish, it was not excessively so. This contrasted sharply with some of the more dramatic speculative moves seen in previous months, where speculative liquidation often reached into the hundreds of millions of dollars. In this case, the lack of aggressive upside leverage helped prevent what could have been a cascading liquidation event.

Even though $42.1 million in long liquidations is a lot of money, it is actually quite small relative to the kind of extreme liquidations that we’ve seen during Bitcoin’s most volatile periods earlier this year. For example, in February and March, daily liquidations regularly peaked at over $140 million—an ocean of cash that was simply obliterated. As you might guess, that created an atmosphere in which it was really hard to be a trader and an environment that was no good for the overall market, either. In contrast, daily liquidations this week have been pretty tranquil, with a total liquidation figure that is slight enough to not even catch the attention of some Bitcoin news headlines.

Several factors account for this difference. However, one key reason for the more muted liquidation event is the absence of excessive leverage in the market. When Bitcoin’s price tumbles, positions that are heavily leveraged tend to create a cascading liquidation effect that takes down other leveraged positions and pushes the price down even further.

This time around, there just doesn’t seem to be that significant of a buildup of excessive leverage—especially among those betting that Bitcoin would keep rising in price. If anything, traders seem more cautious about their market exposure, and with good reason. Bitcoin’s price can swing in both directions by a wide margin at any moment.

Also, the recent market movement seems to be more about selling in the spot market and reducing exposure than about the liquidation of long positions held by people using a lot of leverage. When participants sell Bitcoin direct to the market, they are spot selling. Spot selling can drive down prices. What it doesn’t do is cause big liquidation numbers to show up in the futures market. So this decline is likely more a case of very large market participants reducing their risk exposure and not a case of failed buy-the-dip orders driving themselves to the stop-loss liquidation zone.

Bitcoin’s future liquidation not resulting in a chain-reaction collapse of the market sent two signals. One: The market is in a more balanced state right now. You’d think trader sentiment would be in the dumps, what with Bitcoin having lost 25% of its value (and 32% at one point) over the past month. But despite this recent sharp down move, there hasn’t been a huge spike in liquidation. This suggests a lot of traders are still holding on to their BTC for dear life and that others are taking an orderly sell route out of the market.

This is a way more regulated price movement, while in the early months of the year, the market was mainly swayed by how sensitive it was to leverage and liquidations.

In my view, this is a positive development for the market.

Why? Because it indicates that stronger hands shouldn’t be weaker on the liquidity front. Stronger liquidity in crypto markets should also reduce volatility in price movements.

Recent Bitcoin futures liquidations, totaling $58.8 million, present a market picture that, despite a 10% price drop, looks relatively stable compared to the chaotic price action of prior months. Long positions took the brunt of it, with 73% of all liquidated futures belonging to traders who had bet that Bitcoin’s price would go up. But this liquidation was nothing compared to the voluminous washout seen earlier this year.

In the end, this orderly liquidation event reflects a more adult market, one that can handle short-term price fluctuations without going into full-scale panic mode. Meanwhile, Bitcoin itself continues to set its own targets in the highs and lows of cryptocurrency land. Thus far, anyway, the market seems to have taken a 10% drop in Bitcoin’s price and more or less absorbed it in a calm, structured, and, if you will, resilient manner.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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