Altcoins
$367 million in cryptocurrencies go up in smoke
Data shows that the cryptocurrency derivatives market has suffered a large number of liquidations in the last day following the collapse in altcoins.
Altcoin Wants Witness Squeeze, Ethereum Leads Liquidations
The past day has been a volatile period for the cryptocurrency market, with most altcoins experiencing declines of more than 5%. As is generally the case, this sector-wide volatility has wreaked havoc on the derivatives front.
According to data from CoinGlassNearly $429 million worth of contracts were discovered in the derivatives market liquidation in the last 24 hours.
The data for the liquidation flush that has occurred over the past day | Source: CoinGlass
A contract is said to be “liquidated” when the platform with which it is opened has to forcibly close it after having accumulated losses of a certain amount (the exact figure may vary from exchange to exchange).
As seen in the chart above, long-term contract holders witnessed the vast majority of such forced closures over the past day. More specifically, approximately $367 million of the liquidations, or more than 85% of the total, involved these traders betting on a bullish outcome for the market.
The reason for these lopsided liquidations naturally lies in the fact that cryptocurrencies as a whole have seen a steep downward trajectory over the period.
Below is a heat map showing how individual assets contributed to this latest flow of derivatives.
The distribution of the liquidations by symbol | Source: CoinGlass
Unlike what usually happens during these violent liquidation events, Bitcoin (BTC) is not leading the charts in this metric. In first place is Ethereum (ETH), the second largest cryptocurrency based on market capitalization, with approximately $92 million in liquidations.
This may be due to the fact that Bitcoin has moved more or less sideways over this period, while Ethereum has seen a decline of more than 3%. Interestingly, behind these two major coins are memecoins Dogecoin (DOGE) and Shiba Inu (SHIB), with liquidations of $60 million and $23 million respectively.
These altcoins have seen the sharpest drops among the major cryptocurrencies, around 11% each. This, combined with the fact that memecoins get more speculative activity in general, could explain why DOGE and SHIB have an advantage over coins not called ETH or BTC.
Even then, the difference between Dogecoin and Bitcoin is currently only $10 million, which is impressive considering the difference in market capitalization between the two assets.
A mass liquidation event like this latest one is popularly known as “tight.” During these events, liquidations can cascade together like a waterfall, causing even more volatility in the market. Given that long positions have taken the vast majority of the latest liquidations, the event would have been called “long squeeze.”
Squeezes are not an uncommon occurrence in the cryptocurrency market due to the generally high volatility of various coins, but a squeeze of this magnitude dominated by altcoins is certainly not something that occurs regularly.
ETH price
Following this latest collapse, Ethereum, the largest of the altcoins, fell to the $3,400 level.
Looks like the price of the coin has gone down recently | Source: ETHUSD on TradingView
Featured image from Shutterstock.com, CoinGlass.com, chart from TradingView.com