Author: Ltrd
Compiled by: 1912212.eth, Foresight News
This crash is the largest liquidation since 2021. I want to analyze the entire situation from a microstructural perspective.
First, we need to identify the areas with the largest selling pressure. We found that traders on Coinbase began selling heavily nearly an hour before this massive crash occurred.
Of course, the largest drop was triggered by a chain of liquidations, but this ongoing selling pressure played an important role in pushing prices into the leveraged liquidation zone. So how do we determine when the market is overheated? It's simple—by the 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 pressure. The relative strength in recent days is also apparent—could someone be buying?
I personally really 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's market impact on Coinbase is quite significant.
In relatively mature large markets, we witnessed a series of large sell orders that caused the market to drop by more than 5%. It is still unclear what exactly happened, but this is clearly unusual.
You can see that these sell orders are not normal. 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 that stop losses and liquidations are triggered, and the final impact will be more significant, especially when this occurs within minutes.
Coins like XRP can soar hundreds of percentage points even when their market capitalization is comparable to that of the largest companies in the U.S. Relative to market capitalization, liquidity for XRP in the market is still 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 number of liquidations, liquidity constraints, and many profitable players looking to buy the dip.
The volume chart shows accumulated trading volume during the crash. Surprisingly, both USDC and FDUSD had significant trading volumes, but the volume for ADA was particularly large.
