Key Points
- The crypto market saw over $875 million in liquidations after Bitcoin’s price drop.
- Bitcoin long liquidations also reached a record high of $416 million.
The cryptocurrency market recently experienced a significant increase in liquidations, exceeding $875 million. This occurred following a drop in Bitcoin’s value below $100,000.
Record High in Bitcoin Liquidations
According to data from Coinglass, long liquidations amounted to $702 million, while short liquidations were around $173 million. Over 157,000 traders felt the impact of these liquidations.
Traders who were anticipating further gains in Bitcoin (BTC) suffered the most losses, with long BTC liquidations reaching $416 million. These positions were liquidated following an unexpected surge in volatility, causing Bitcoin’s price to drop from over $100,000 to $92,000 in less than four hours.
Altcoins Experience Volatility
Altcoins also experienced a slight increase in volatility. The price of Ethereum (ETH) varied between $3,600 and $3,900, leading to $85 million in liquidations. XRP and Dogecoin also saw significant levels of liquidations, amounting to $40 million and $22 million respectively.
This sudden increase in liquidated trades and volatility is believed to be a forced correction resulting from an overleveraged market.
Overleveraged Market Leads to Surge in Liquidations
CryptoQuant reports that Bitcoin funding rates reached a multi-month high of 0.0663 on 5th December, indicating a dominance of long positions. When funding rates reach such high levels, it often precedes a sharp move in the opposite direction of traders’ price expectations.
As a result, following an accumulation of long positions, a long squeeze occurred, triggering forced selling and a decrease in funding rates. The estimated leverage ratio also shows this market correction, with a sharp rise followed by a decline due to the closure of overleveraged positions.
Despite the recent correction, Bitcoin’s market value to realized value (MVRV) ratio suggests that BTC has not yet reached its local top. The MVRV ratio currently stands at 2.5, indicating that the asset is still fairly priced. Over the past three months, Bitcoin’s MVRV ratio has risen from 1.72 as holder profitability has increased.
A further rise in the MVRV ratio beyond 3.5 would signal that Bitcoin has reached a local top. Therefore, traders should be vigilant for a potential increase in this metric to overvalued levels.