Key Insights:
Leveraged traders in Bitcoin lost $800 million in recent market corrections.
Despite minor drawdowns, the losses were $107 million for Dogecoin and Shiba Inu leveraged traders.
The market is expected to be less volatile as unrealized profit drops 76% in Bitcoin.
Bitcoin saw the highest liquidation in crypto markets, with leveraged trades worth more than $800 million liquidated because Bitcoin's price saw profit booking after falling from $103,.9k to $92k and then another fall from $98.5k to $94k. Both of these falls wiped out around $565 million and $180 million in leveraged trades, with a few minor liquidations in between.
Bitcoin Leveraged Traders Liquidation in the Last Week
Though such liquidations seem a rout for many traders, they are critically necessary to help transfer market control from short-term traders to long-term traders.
The flash rally that took Bitcoin from $94k to $103.9k was mostly due to short-term traders. Though long-term investors like MicroStrategy and Bitcoin ETFs were present in the market, most of the leveraged buying that took the crypto higher came from short-term high-net-worth traders who use leverage.
Flash Rally in Bitcoin From $94k to $103.9k
DOGE and SHIB suffered heavy liquidations, mostly in the derivatives markets. This is because after a certain amount of price drop, it becomes increasingly expensive for leveraged traders to carry on their trades. Among all traders, the ones trading DOGE derivatives suffered a $96 million loss, and those trading SHIB suffered an $11.62 million loss, totaling around $107 million in longs.
Total DOGE Liquidations in Last 24 Hours
Leveraged Trade Liquidation in SHIB in the Last 24 Hours
These losses caused the short-term traders to exit the markets, making them more stable and less volatile. This is expected to help long-term investors who can accumulate these cryptocurrencies.
In the last six weeks, the markets have become much more volatile due to the US elections and a post-market rally after the results were announced. Bitcoin went up from $69k to $103k in this period, driving markets to a zone of high volatility. In the same period, Dogecoin rallied from $0.1 to $0.44, and Shiba Inu rose from $0.000017 to $0.000033.
As expected, the markets saw some corrections in the second week of December i.e., this week when most cryptocurrencies saw price corrections. One good aspect of these corrections is that they give short term holders an exit and long-term holders, a chance to accumulate more.
The less unrealized profits after a sell-off (like the current one), the more short-term traders exit, giving control to stable money from long-term traders.
Data from Bitfinex showed a 76% drop in net unrealized profits which acted as a steam valve for BTC and prevented a panic sell-off that could have been triggered due to excessive long leveraged trades.
Additionally, such periods help participants identify support and resistance levels for the crypto markets, which in turn helps traders and investors make further investment decisions. This period of consolidation also lends the market much-needed stability. A benefit of this stability is that it allows everyone to regroup, evaluate their options for the future, and make their next moves.
Leveraged trading provides short-term benefits but also poses serious risks to capital. The current market scenario highlights its darker side.
When crypto markets are in a rally, short-term leveraged trades can yield very high returns in a very short period of time. However, most of the time, the markets are not supercharged, and in these moments, traders face liquidations like the current one we saw in Bitcoin, Dogecoin, and Shiba Inu.
In such scenarios, traders using leverage are forced to shut their trade and must accept their losses even when they know it will wipe down most of their capital.
Disclaimer: Voice of Crypto aims to deliver accurate and up-to-date information, but it will not be responsible for any missing facts or inaccurate information. Cryptocurrencies are highly volatile financial assets, so research and make your own financial decisions.