Written by: Alvis
Early this morning, Bitcoin's price briefly plunged to $94,000, triggering severe fluctuations in the cryptocurrency market, with altcoins performing even worse, with most tokens falling by 20%-30%. As of the time of writing, Bitcoin has recovered somewhat. This market turmoil resulted in a total liquidation amount of $1.716 billion across the network, affecting 570,876 traders. This event not only became the largest liquidation wave in nearly two years but also reflects the current structural risks and emotional volatility in the crypto market.
This article will deeply analyze the background, data, market impact, and future trends of this event.
Market liquidation scale hits a one-year high: Leverage trading becomes a risk hotspot
This liquidation event set a new record for 2023 with a liquidation amount of $1.716 billion, exceeding last month's single-day liquidation scale of about $500 million. Among them, long positions suffered particularly heavy losses, amounting to $1.53 billion, while short positions lost $155 million. Data shows that small altcoins have become the 'disaster zone' of this liquidation, with liquidation amounts reaching $564 million, with long positions accounting for over 96%.
Clearing disaster zone: The underlying logic behind platform data
Binance leads this liquidation event by a wide margin, with a total liquidation amount reaching $740 million, accounting for 42% of the total network liquidation amount.
OKX and Bybit ranked second and third, with liquidation amounts of $422 million and $369 million, respectively. The largest single liquidation transaction occurred in Binance's ETH/USDT contract, amounting to $19.69 million.
Bitcoin and Ethereum, as the two core assets of the cryptocurrency market, have not been spared.
Bitcoin briefly fell below the psychological barrier of $100,000, dropping more than $6,000 in one day, recording $182 million in liquidations, with long losses accounting for 77%.
After failing to break through the key resistance level of $4,050, Ethereum's price retested the $3,500 support, recording $243 million in liquidations, including $219 million lost by long positions.
Historical perspective: Why is the scale of this liquidation so large?
Large-scale liquidation events in the cryptocurrency market are not uncommon, but the scale of this liquidation wave is clearly unusually prominent.
From a trend perspective, since 2022, as the market size has expanded and leverage rates have increased, the total amount of liquidation has continued to rise. More importantly, the concentrated risk exposure of leveraged traders makes the market more vulnerable in the face of extreme fluctuations.
It is noteworthy that the market has experienced multiple peaks of liquidation in the past year, but the scale has mostly hovered between $500 million and $1 billion. However, this amount has exceeded the record high of liquidation since the 519 incident in 2021 in the crypto market and may set a record for this bull market, far surpassing the 312 incident in 2020.
The reasons for this wave of liquidation mainly include: the chain reaction of high-leverage positions, the liquidation chain triggered by severe market fluctuations, and the dominant structure of long positions. Especially, the sharp drop in Bitcoin triggered leveraged liquidations, coupled with the high volatility in the altcoin market, resulted in over 90% of liquidation amounts coming from long positions. Compared to the external shocks of the 312 incident, this time is more a result of internal leverage imbalance.
This once again warns investors: in a highly volatile market, rationally managing leverage is key to long-term participation.
Ethereum: From on-chain activity to the resilience of the derivatives market
On-chain data and network activity
DApp transaction volume ranking in the past 7 days
As the second largest asset in the market, Ethereum has shown a degree of resilience during this wave of liquidation. On-chain data shows that the Ethereum network's transaction volume surged by 24% in the past week, reaching $24.2 billion, and when combined with second-layer solutions like Base, Arbitrum, and Polygon, the total transaction volume skyrocketed to $48.6 billion. This figure far exceeds Solana's $29.5 billion, indicating that the activity of the Ethereum network remains high.
Additionally, since November 29, ETH ETF fund inflows have reached a historical high of $1.17 billion, injecting liquidity into the market. However, the ETH price still failed to break through the long-term resistance level of $4,050, and the pressure from this technical threshold clearly restricts the price trend.
Derivatives market signals: Optimism is not completely dissipated
From the perspective of the futures and options market, the ETH derivatives market still maintains strong resilience.
The annualized premium of Ethereum futures remains at 17%, well above the neutral level of 10%, indicating sustained demand for ETH leverage.
At the same time, the skew of Ethereum options dropped from -7% to -2%, indicating that market sentiment has shifted from extreme optimism to neutral, but no significant bearish signals have emerged.
In addition, the perpetual contract financing rate is currently at 2.7%, above the neutral threshold of 2.1%, indicating that the market's demand for short-term leverage remains strong. However, the financing rate has gradually decreased from a peak of 5.4% on December 5, which may also reflect an increased vigilance among some traders towards market volatility.
Recommended reading: Altcoin financing rates hit a 9-month high - Is it a boon or a danger signal for altcoin season?
Macro and micro: Dual factors influencing market sentiment
Cryptocurrency market volatility often accompanies changes in macroeconomic variables. This sharp decline is no exception, as the macroeconomic environment has significantly impacted investor confidence.
Recently, China's November inflation data fell by 0.6% month-on-month, reflecting the risks of weak global economic growth. Meanwhile, Nvidia's stock price dropped due to monopoly investigations, further intensifying the downward pressure on the technology sector, indirectly affecting investors' preferences for risk assets.
Meanwhile, the cryptocurrency market's own volatility and structural risks have exacerbated panic sentiment. Although the activity of on-chain data and ETF fund inflows provided some support to the market, they did not fully offset the negative impact of the external environment.
Future outlook: Can altcoins catch a breather?
Technical aspects and key support levels
Bitcoin needs to stabilize above the key psychological barrier of $100,000 to stabilize market sentiment; Ethereum needs to challenge the $4,050 resistance level again to restore investor confidence. In the altcoin sector, although the current liquidation ratio is high, there may be rebound opportunities after a deep correction, especially for projects with strong fundamentals and community support.
Structural opportunities and risks
The actions of institutional investors during this liquidation event are worth noting. ETF fund inflows and improvements in on-chain data may provide a foundation for future market recovery, but the high-leverage operations of retail traders remain the main source of market vulnerability. In the short term, as market volatility gradually calms down, professional investors may reposition to lay the groundwork for the next market trend.
Conclusion: Market review and warnings after the liquidation storm
This liquidation event once again highlights the high volatility and high-risk characteristics of the cryptocurrency market. The sharp drop in Bitcoin and Ethereum not only caused short-term panic but also reminded investors to prudently manage leverage positions to avoid falling into uncontrollable risks due to market fluctuations.
According to CoinGlass data, Bitcoin's probability of rising in December and January over the past 12 years has been half. This historical data shows that the overall performance of the cryptocurrency market at the end of the year and the beginning of the year tends to be relatively flat, with increased volatility but unclear trends. In the future, investors need to pay more attention to market data, macroeconomic conditions, and the dynamic changes in leverage positions, ensuring proper risk management when positioning to support long-term investment strategies.
