The bitcoin (BTC) and cryptocurrency market experienced a week of strong liquidations of leveraged positions. These were for a total of 2.3 billion dollars (USD), counting from Monday, January 6 to Sunday, January 12.
75% of the liquidations corresponded to long positions (long), that is, operations that invested due to the rise of crypto assets. In other words, it is shown that price movements mainly caught bullish traders by surprise.
Precisely, almost USD 1,740 million of liquidations were long positions, while short positions (shorts) totaled close to USD 632 million. The latter represent those operations that invested due to the drop in the price of crypto assets.
The liquidations took place due to the high volatility that the market experienced. The price of bitcoin (BTC) ranged between USD 102,000 and USD 91,000 throughout the week, showing a downward trend.
Below you can see in detail how the settlements fluctuated day by day, with the price movement.
This market behavior occurred amid growing uncertainty over monetary policy in the United States due to the strengthening of the labor market.
As CriptoNoticias reported, with such a scenario, entities such as Bank of America have predicted that this year there will be no interest rate cuts in the economic powerhouse.
Rate cuts in the United States have been one of the factors that led to the rise in markets last year. This is because this monetary policy increases the liquidity available in the economy.
With this panorama, the bitcoin market tries to maintain the key support of USD 90,000-91,000, which it has held for a month and a half, as can be seen in the next graph.
What are leveraged position liquidations?
In trading, traders can make investments with leverage, that is, use borrowed funds to open positions larger than their initial capital. This strategy is widely used in the futures market to invest for the price increase (long) or the low (shorts).
Generally, this practice is carried out by experienced investors since it involves high risks. When the price of the asset moves against the direction of a trade and the trader’s margin is not enough to cover the losses, a liquidation is triggered (unless the trader closes his trade earlier, assuming smaller losses using the known strategy as ‘stop loss’).
Liquidation refers to the automatic closing of leveraged futures positions due to lack of margin.. Thus, it results in capital losses for traders.
Volatility risks due to events in the United States
The market could continue to show high volatility in the coming daysaround the United States inflation report to be published on January 15. In addition, the wait for Donald Trump’s presidential inauguration in the United States, which will occur on January 20, could increase the unrest.
The presidential inauguration generates expectations about possible changes in economic and regulatory policies, and even about the cryptocurrency ecosystem.
Trump said during his campaign that he will integrate bitcoin into national reserves and make the United States the capital of the digital asset industry.
This could intensify price movements in the cryptocurrency market and, therefore, the risks of new liquidations. In this sense, it is crucial for traders to carefully manage their trades to avoid unwanted situations.