Traders on Coinbase began selling heavily an hour before this massive decline occurred.
Written by: Ltrd
Translated by: 1912212.eth, Foresight News
This decline is the largest liquidation since 2021. I want to analyze the whole situation from a microstructural perspective.
First, we need to identify where the selling pressure is the greatest. We found that traders on Coinbase began selling heavily nearly an hour before this massive decline occurred.
Of course, the largest declines were triggered by a chain liquidation, but this sustained selling pressure played a significant role in pushing prices into the area where leverage gets liquidated. So how do we determine if the market is overheated? It's simple—by the increase in funding rates and the number of open contracts. These two factors are the drivers of the current market, indicating that people are using excessive leverage.
After the sharp decline, ETH experienced strong buying pressure. The relative strength in recent days has also been quite evident—could someone be buying in?
I personally enjoy analyzing market impact. If I could focus on just one feature in the market, it would definitely be market impact. Here, you'll see some shocking things—XRP's market impact on Coinbase is quite significant.
In a relatively mature large market, we witnessed a series of large sell orders, which led to a market decline of over 5%. It's still unclear exactly what happened, but this is clearly unusual.
You can see that these sell orders are unusual. This situation might be worth monitoring in the coming days. Perhaps a big player was forced to sell.
When similar situations occur, it is usually a chain reaction of forced liquidation sell orders. Market makers absorb this selling pressure and hedge, leading to signals spreading across major exchanges. For perpetual contract exchanges, this means stop losses and liquidations are triggered, and the ultimate impact can be more pronounced, especially when this happens within minutes.
Coins like XRP, even with a market cap comparable to the largest companies in the U.S., can soar by hundreds of percentage points. Relative to its market cap, the liquidity of XRP in the market remains poor.
In a hot market, the next common phenomenon is a rapid price reversal from the lows. At this point, there are large liquidations, liquidity constraints, and quite a few profitable players looking to bottom out.
The volume chart shows cumulative trading volume during the decline. Surprisingly, both USDC and FDUSD had significant trading volumes, but ADA's trading volume was particularly high.