Amidst Weeks of Calm, Cryptocurrencies Witness a Startling $71.6 Billion Plunge in Market Value on August 17, Triggering Massive Liquidations
August 17 marked a sudden shift in the cryptocurrency landscape, shattering the weeks of low volatility that preceded it.
The day concluded with a jarring sight as a significant red candle dominated the charts, causing the entire crypto market to shed a staggering $71.6 billion in total market capitalization.
This unsettling 6% drop sent shockwaves through the industry, resulting in a cascade of liquidations for crypto assets. Amidst this tumultuous situation, more than $1.04 billion were wiped out from the trades of hundreds of thousands of traders.
Traders faced a dire situation as liquidation data from Coinglass, sourced by Finbold, revealed the grim aftermath. Over the span of 24 hours, a total of $1.04 billion was liquidated, affecting 177,003 traders. Strikingly, a significant portion, amounting to $836.19 million (80%), was linked to long positions, indicating the predicament of traders who had bet on rising prices, only to be confronted with a steep downturn.
Notably, Bitcoin (BTC) bore the brunt of this market upheaval, witnessing $498.81 million in liquidations from predominantly long positions.
However, the most substantial single liquidation occurred within the Ethereum (ETH) camp, where a trader faced a staggering $55.92 million in losses. ETH itself experienced a total of over $309.08 million in liquidations, largely tied to long positions.
Understanding Liquidation: Unveiling the Mechanism
In the realm of derivatives and margin markets, traders commonly establish positions on crypto exchanges or specialized platforms through two main methods:
A. By purchasing contracts tied to their chosen tokens, each contract governed by rules that may compel traders to close their positions when faced with realized losses.
B. By borrowing funds against a collateral deposit, enabling leveraged positions funded by third-party resources. These positions can be forcibly closed if the traded asset hits a predetermined price, referred to as the liquidation price. Consequently, the platform executes a sale (liquidation) of the trader’s deposited collateral, effectively terminating their position.
Noteworthy Market Moves and Influences
Notable actions were observed in the market, including Coinbase (NASDAQ: COIN) engaging in short positions against the cryptocurrency landscape during preceding quarters. Employing financial tools such as future contracts and borrowings, Coinbase maneuvered through uncertain waters.
Bitcoin’s price plunged by 7.39% within 24 hours, settling at $26,431 at press time. This drop occurred in the wake of negative news surrounding China’s Evergrande bankruptcy and the revelation that Elon Musk’s SpaceX divested its entire Bitcoin holding for $373 million.
The severity of this massive sell-off caught many traders off guard, resulting in liquidations. Interestingly, Finbold had already published expert analysis on the possibility of a significant dump prior to a potential Bitcoin pump, which materialized on August 7.
Ethereum also encountered its own “red day,” experiencing a loss of 6.14% and trading at $1,685 at press time. Ethereum’s price movement typically intertwines with Bitcoin’s trajectory and broader macroeconomic trends. Despite the setbacks, some positive signals emerged for the second-largest cryptocurrency by market capitalization.
Parallel to Bitcoin’s circumstances, experts had anticipated a downturn for Ethereum, projecting a drop to the $1,600 range before a potential recovery and price surge. Finbold had already highlighted this analysis on August 14.
A Future Determined by Development and Sentiment
Ultimately, the ability of both Bitcoin and Ethereum to align with analyst predictions hinges on forthcoming developments within their respective projects and the overall sentiment in the broader crypto and macroeconomic landscape.
