In the last 24 hours, there have been true records of crypto derivatives liquidations in the Ethereum and Bitcoin futures market.
The price started to fall below some key thresholds, and this decline triggered the forced liquidation of many leveraged long positions.
The liquidations on Ethereum futures: the current situation of crypto derivatives
According to the CoinGlass data, in the last 24 hours alone, long positions on Ethereum have been liquidated for a total amount nearing 350 million dollars.
It should be noted that on the futures market of Bitcoin there were less than 370 million, so in proportion to the market capitalization this dynamic impacted more on ETH than on BTC.
Furthermore, out of a total of 908 million dollars of long positions liquidated in the entire crypto market, almost 80% involved exclusively either ETH or BTC.
160 million dollars of short positions have also been liquidated due to volatility.
Taking the exchanges as a reference, only on Binance a total of long positions worth 92 million dollars have been liquidated, followed by OKX with 72 million.
In total, liquidations amounting to over 1 billion dollars have been recorded, with over 275,000 traders liquidated.
From this picture, it clearly emerges that Ethereum has been the cryptocurrency most influenced by this dynamic.
Ethereum vs. Bitcoin
In fact, the price of ETH in BTC (that is, the price ratio between Ethereum and Bitcoin) has definitely dropped.
Friday morning, before the crash began, one ETH was worth about 0.049 BTC.
Already on Friday afternoon, however, this ratio had fallen below 0.048, but the real collapse began on Sunday afternoon.
In the last 24 hours, the price of Ethereum in Bitcoin has gone from 0.048 BTC to 0.044 BTC, but with a minimum peak last night below 0.042 BTC.
These are values that had not been seen since April 2021, when the first phase of the last great bullrun of Bitcoin ended and a brief altseason began.
Even the dominance of Bitcoin has risen to its highest since April 2021, that is above 58%, and then settled just above 57%.
Bitcoin is therefore suffering, but Ethereum and altcoins in general are definitely suffering more, even though some are losing less than BTC (but these are exceptions).
The crypto derivatives market: liquidations on Ethereum and Bitcoin futures
The crypto derivatives market tends to be dominated by short-term speculation.
The long and short leveraged positions on futures are by definition short-term positions, precisely because leverage makes them more easily liquidatable.
When the losses of a leveraged position approach the amount of invested capital, they are automatically liquidated in order to avoid generating negative balances.
Leverage allows, by borrowing funds, to achieve greater gains in case the trade is positive, but it also increases the risk that the position will be liquidated, with the loss of all the capital invested in the open position, in case of sudden and opposite movements.
Moreover, when many liquidations start to trigger, this phenomenon becomes self-sustaining.
For example, yesterday the forced liquidations of leveraged long positions probably surged when the price of Bitcoin fell below $60,000, even if at first the chain reaction was not triggered.
This chain reaction was triggered both when it fell below $58,000 and when it fell below $53,000, with mass forced liquidations that forced the exchanges to automatically sell BTC, causing a further drop in the price and further liquidations.
The chain reaction, however, seems to have ended when the price of Bitcoin fell below $50,000, so much so that it then bounced back.
The causes
There were two factors that triggered panic in the crypto markets between Friday and last night.
The first, and probably the most important, is the risk of a military escalation in the Middle East, with Iran seemingly wanting to attack Israel directly.
The second, however, ongoing for several days, is the increase in recession risk in the USA, after the Fed did not cut rates at the end of July and unfavorable data on the labor market in the USA was released.
This second factor, however, could disappear soon, because it seems that the Fed is considering an extraordinary intervention to cut rates earlier than expected (September).
Instead, the problem in the Middle East persists, and it is creating panic even in traditional financial markets, so much so that, for example, the Tokyo Stock Exchange recorded its worst session ever.
All this, however, seems closely linked to the short term, both because the Fed could intervene within a few weeks and cut rates, and because the attack by Iran could also be swift and only partial. The situation, however, is evolving, and at this moment it is practically impossible to make precise predictions about how it could realistically evolve.
