Bitcoin's 8% Drop Triggers Largest Liquidation on BitMEX in 2 Months

BitMEX liquidated over $250 million-worth of bitcoin long-short positions after spot prices fell sharply Sunday.

AccessTimeIconMay 11, 2020 at 11:55 a.m. UTC
Updated Sep 14, 2021 at 8:39 a.m. UTC

Bitcoin fell sharply on Sunday, triggering the highest long-short liquidations on crypto derivatives exchange BitMEX for the past two months. 

The top crypto by market cap fell by over 8.5% – its biggest single-day drop since March 12, when prices crashed nearly 40%, according to CoinDesk’s Bitcoin Price Index. The decline could have been much bigger had prices remained at the session low of $8,100, hit in the early Asian trading day, instead of recovering to $8,731 by UTC close. 

The cryptocurrency fell from $9,560 to $8,100 between 00:00 and 01:00 UTC, catching most traders off guard and forcing as much as $278 million worth of futures liquidations on BitMEX. That's the highest amount since March 13, according to crypto derivatives research firm Skew, when the daily total value of long-short positions hit well over $700 million.

BitMEX liquidations
BitMEX liquidations

The vast majority of Sunday's closures were for sell liquidations – when the price drops beneath a predetermined limit (the liquidation price) and forces traders to close their long positions.

The massive amount of sell liquidations indicate leverage was skewed to the bullish side. 

That's not surprising as the bullish narrative surrounding the impending mining reward halving has dominated market sentiment since bitcoin bottomed out at $3,867 in mid-March. Furthermore, the cryptocurrency decoupled from traditional markets in the last week of April and moved into five figures last week, bolstering the bullish price expectations. 

Pullback comes early

Bitcoin was already overdue for a pullback. Technical indicators began signaling that the asset was overbought last Friday when as many as 85% of all wallet addresses holding bitcoin having already made a return on their investments ahead of the halving event.

However, most observers were optimistic a temporary price drop, if any, would be seen after the halving. Also, traders were hedged against the risk of potential price pullback, as evidenced by the uptick in demand for put options over the past few weeks.

The pullback, however, has come early and could be extended further to $7,000, according to James Richman, chief executive and chief investment officer at private asset management firm JJ Richman.

That possibility cannot be ruled out, as technical studies have rolled over in favor of the bears. The MACD histogram, which identifies trend changes and trend strength, has crossed below zero for the first time since March 20, suggesting a bearish reversal. Last week’s spinning top candle is reporting buyer exhaustion – when investors are no longer supporting the sustained price increase.  

That said, sellers are yet to penetrate the all-important 200-day average support at $8,040. A close lower could bring in additional selling pressure, opening the doors to $7,000. 

While Richman is expecting a deeper drop to $7,000, his long-run outlook is still constructive: “A drop to $7,000 would be a good opportunity to buy and load up before it takes strength to develop and push towards $10,000 again."

Meanwhile, Henrik Anderrson, chief investment officer at Australia-based Apollo Capital, is of the opinion that the price dip seen over the last three days could still be short-lived.

“There is room for prices to go higher as leverage seems to have come out of the market,” he told CoinDesk, “in the short term we believe US$10,000 is a psychologically important level for Bitcoin. If we can sustain a price over 10,000, we will see increased confidence in the market.”

Su Zhu, CEO of Three Arrows Capital, echoed similar sentiments: “Because of the significantly deep capitulation in mid-March [an asset-wide mass selling of positions], further downside is de-risked from here.”

At press time, bitcoin is changing hands at $8,558. The bounce from Sunday’s low of $8,100 ran out of steam above $8,800 during the overnight trade. 

Disclosure: The author holds no cryptocurrency at the time of writing.


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