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BTC Briefly Dropped Below $40K on Huobi Amid Massive Liquidation

More than $3 billion in long positions were liquidated on Tuesday.

Sep 7, 2021 at 7:06 p.m. UTC
Updated Sep 7, 2021 at 10:47 p.m. UTC

Bitcoin (BTC), the largest cryptocurrency by market capitalization, sank below $40,000 on the crypto exchange Huobi, the lowest point of any major exchange during Tuesday’s crypto market correction.

The latest market sell-off sent bitcoin’s price to as low as $42,921.27 over the past 24 hours, according to CoinDesk 20 data. But according to TradingView and Huobi, bitcoin dropped to a shockingly low $39,818.18 on Huobi.

BTC/USDT trading pair on Huobi. (TradingView/Huobi)

One trader told CoinDesk the BTC/USDT pair on Huobi fell below $40,000 briefly because Tuesday’s correction triggered liquidations of billions of dollars of trading positions, the result of margin calls on major centralized exchanges.

At the time of publication, Huobi had not responded to a CoinDesk request for comment.

According to the crypto trading data site Bybt, centralized exchanges offering crypto futures liquidated more than $3 billion in long positions on Tuesday, as bitcoin’s price started dropping sharply earlier in the day.

Crypto futures liquidations long versus short. (Bybt)

Forced closure of long positions, or bullish trades, account for $3.22 billion, or over 90% of total liquidations, which shows the leverage skewed excessively bullish across the market. Liquidations happen when trades cannot fulfill margin requirements for holding long/short positions and often exacerbate bullish or bearish price trends.

It “looks like it was a standard de-leveraging event,” Rahul Rai, co-head of market neutral at crypto investment firm BlockTower Capital, told CoinDesk. “Huobi had the second most liquidations after Bybit ... more liquidations [means] spot bitcoin selling [and] bitcoin trades lower on Huobi.”

Data from Skew shows that more than $290 million worth of bitcoin futures positions were liquidated on Huobi, the second most behind Bybit.

Bitcoin futures liquidations on major exchanges. (Skew)

The large forced closure of long positions also pushed bitcoin futures into backwardation – a market condition where futures trade at a discount to the spot price. As seen in the chart below, bitcoin futures traded at discounts on every major centralized exchange earlier Tuesday.

The one-month basis, or the difference between the price of the one-month futures and the spot price, turned negative briefly. (Skew)

At press time, bitcoin was trading at $47,284.18, down 8.62% in the past 24 hours, according to CoinDesk 20 data.

DISCLOSURE

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Muyao is a reporter on the markets team. She is based in Brooklyn, New York. She holds less than one BTC.

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