Crypto traders Tuesday endured the largest leveraged long wipe-out in three months as the ETF-fueled rally for digital asset prices reversed sharply lower.
Big declines across the board prompted over $307 million in liquidations of leveraged crypto long positions – bets on higher prices – over the past 24 hours, data from CoinGlass shows. This was the largest amount of liquidated longs in a day since August 17, when bitcoin (BTC) plunged from above $28,000 to about $25,000 in the space of a few minutes.
Today’s wipeout happened as BTC tumbled 4% to $35,000 despite a generally supportive environment for risk assets following a cooler-than-expected October inflation reading that sent stocks sharply higher and bond yields substantially lower. The decline was broad-based across crypto, including ether’s (ETH) 6% fall to below $2,000.
Today’s action stands in contrast to that of the past few weeks which have been notable for “short squeezes” as rising asset prices forced liquidations of money-losing leveraged bets on lower prices.
Liquidations happen when an exchange is forced to close a leveraged trading position due to the partial or total loss of the trader’s margin, or money down. Cascading liquidations can exacerbate price volatility as traders cover their positions, flushing out excess leverage on the market.
The large amount of liquidations suggests that the sudden decline in prices caught most investors off-guard, with 88,667 traders getting flushed, CoinGlass shows. Bitcoin traders suffered the most liquidations at $133 million, followed by ETH traders with some $70 million.
JPMorgan analysts said in a report last week that the recent rally in cryptocurrency prices was getting “overdone,” as investors became overly optimistic about the spot BTC exchange-traded fund approval’s impact on asset prices.