Written by: Ltrd
Compiled by: 1912212.eth, Foresight News
This crash is the largest liquidation since 2021. I want to analyze the whole situation from a microstructural perspective.
First, it is necessary to determine where the selling pressure is the greatest. We found that traders on Coinbase started to sell heavily nearly an hour before this massive crash occurred.
Of course, the largest declines are triggered by cascading liquidations, but this sustained selling pressure plays an important role in pushing prices into the area where leverage is forcibly liquidated. So how do we determine if the market is overheated? It's simple—an increase in funding rates and the number of open contracts. These two factors are the driving forces in the current market, indicating that people are using excessive leverage.
After the crash, ETH generated strong buying interest. The relative strength in recent days is also quite evident—could someone be buying?
I personally enjoy analyzing market impact. If I could only focus on one feature in the market, it would definitely be market impact. Here, you will see some shocking things—XRP has a considerable market impact on Coinbase.
In relatively mature large markets, we have witnessed a series of large sell orders, leading to a market decline of over 5%. We are still unclear about what exactly happened, but this is clearly unusual.
You can see that these sell orders are abnormal. This situation may be worth monitoring in the coming days. Perhaps a major 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, causing signals to spread across major exchanges. For perpetual contract exchanges, this means stop-losses and liquidations are triggered, and the final impact will be more pronounced, especially when this happens within minutes.
Coins like XRP can skyrocket by hundreds of percentages even when their market capitalization is comparable to the largest companies in the United States. Relative to its market capitalization, XRP's liquidity in the market remains poor.
In a hot market, the next common phenomenon is a rapid price reversal from the lowest point. At this time, there will be a large amount of liquidations, liquidity constraints, and a number of profitable players looking to buy the dip.
Volume charts show cumulative trading volume during the crash. Surprisingly, both USDC and FDUSD had significant trading volumes, but ADA's trading volume was particularly large.
