Crypto-Crash Autopsy Shows Billions Erased in Flash Liquidations
Cryptocurrency markets are stabilizing after a $500 billion Bitcoin wipeout snuffed out a slew of speculative excesses that had been building for months.
Signals across the virtual-currency complex show leveraged positions are getting flushed out while dip-buyers are emerging -- helping fuel a return toward $40,000 for the world’s biggest token.
As the dust settles following the Wednesday crash, Bybt data shows liquidations have totaled roughly $10 billion since Wednesday. Outstanding futures contracts have tumbled from a $28 billion peak in April to just $13 billion Thursday.
The hundreds of billions of dollars changing hands across derivatives this week eclipsed activity in the cash market, as speculators rushed to close positions in the meltdown.
“The selloff was greatly exacerbated by a lot of leverage,” said Martin Green, chief executive officer at Cambrian Asset Management, a $150 million crypto fund. “Now that the excess leverage has been liquidated, we have seen longs and leverage starting to be placed once again.”
It all shows the power of crypto derivatives markets, where activity has exploded with the rise of multi-billion exchanges that cater to Wall Street and retail traders alike. The extreme volatility and big money in digital currencies is starting to draw regulatory attention, with the U.S. Treasury Department calling for stronger tax compliance within the space.
This year’s relentless boom has pushed the likes of Ethereum up as much as 2,200%, while Dogecoin -- a token created as a joke -- became as valuable as blue-chip American companies. Things went awry this week as Bitcoin slid toward $30,000, fueled by regulatory missives from China’s central bank while Tesla Inc. billionaire Elon Musk tempered his enthusiasm for the asset.
“You got all those bearish news and eventually you hit the point where a lot of the leveraged positions were getting liquidated,” said Justin d’Anethan, sales manager at EQUOS, a crypto exchange run by Diginex. “When that happens, it’s just a cascading fall.”