Data shows that a large number of Bitcoin short positions were liquidated after the cryptocurrency surged to $79,000. Bitcoin has now surpassed $79,000 for the first time since early February. The cryptocurrency continued its recent bullish momentum over the past day, jumping nearly 5% to hit $79,300. The chart below shows Bitcoin’s recent price movement. Last week, Bitcoin also tried to recover, but that push fizzled out as it approached $78,000. This new surge has pushed it past that level, reaching heights not seen since the first few days of February.
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Because the rally was sharp, it caused chaos in the derivatives market.
A Large Number Of BTC Liquidations Have Piled Up On Exchanges
According to data from CoinGlass, Bitcoin has seen a significant number of liquidations following the volatility of the last 24 hours. “Liquidation” refers to the forced closure of any open contract that has accumulated too many losses. Below is a heatmap showing how daily liquidations compare across different assets in the sector. Bitcoin was the top contributor to market liquidations, as usual, with over $222 million in positions related to the asset being liquidated in the past day. About $205 million of these were short positions, meaning bearish bets made up the vast majority of liquidations. Shorts being hit hardest is naturally due to the cryptocurrency’s sharp surge during this period.
Ethereum, which saw the second-largest derivatives flush, also had shorts account for $99 million of its $115 million in total liquidations. Overall, the entire digital asset sector saw nearly $449 million in liquidations over the last 24 hours. From the table, it’s clear that $365 million, or over 80% of these liquidations, involved short positions, reinforcing the bullish wave the sector has experienced during this time.
A mass liquidation event like today’s is commonly known as a squeeze. Since this latest event mostly involved shorts, it’s called a short squeeze. Typically, these events start when a sharp price move triggers an initial wave of liquidations. That flush then feeds back into the price move, causing even more liquidations in the market.
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In the cryptocurrency sector, these events aren’t rare due to the regular volatility of coins and the widespread use of leverage among derivatives traders.
Featured image from Dall-E, chart from TradingView.com
Frequently Asked Questions
Here is a list of FAQs about the Bitcoin rally and the resulting short seller liquidations written in a natural conversational tone
BeginnerLevel Questions
1 What exactly happened
Bitcoins price suddenly shot up to 79000 which was much higher than many traders expected Because a lot of people had bet that the price would go down they got caught off guard and lost a ton of money
2 What is a short seller
A short seller is a trader who bets that the price of something will fall They borrow the asset sell it at the current price and hope to buy it back cheaper later to profit from the difference
3 What is a liquidation
A liquidation is when a trading platform automatically closes a traders position because the trade has lost too much money In this case short sellers bets were closed out as the price rose locking in their losses
4 How did short sellers get caught off guard
They were betting that Bitcoins price would drop or stay flat Instead the price jumped rapidly to 79000 When the price rises against a short bet the losses pile up fast forcing the platform to liquidate them
5 Why did the price hit 79000
This specific rally was likely triggered by a combination of positive news large buy orders and the forced buying from short sellers themselves which pushed the price even higher
Advanced Technical Questions
6 How did 200 million in liquidations happen in one event
When many short positions are opened with leverage a sudden price surge triggers a chain reaction As one short position is liquidated its buying activity pushes the price up liquidating the next one and so on 200 million is the total value of those forced buybacks
7 What is a short squeeze and is that what happened here
Yes this is a textbook short squeeze A short squeeze occurs when a rapid price increase forces short sellers to buy back the asset to cover their losses That buying pressure makes the price go even higher squeezing out more short sellers
8 Does this mean Bitcoin is a good investment now
Not necessarily A single rally doesnt confirm a