Retail traders become ‘sitting ducksas sell-off triggers $1.4B liquidation

After flirting with a $2 trillion market capitalization for the last couple of days, the cryptocurrency market took a 7% hit on April 7, dropping the total crypto market cap to $1.8 nghìn tỷ. As the unexpected sell-off took place, investors scrambled to find a reason to explain the move.

Analysts typically identify the use of excessive leverage as the prime suspect, as this usually occurs as the market reaches an all-time high and traders get greedy, but this is an easy conclusion to reach.

The actual cause could be near impossible to determine. Vẫn, a starting place is looking at how high buyersleverage was compared with the previous weeks. Analysts must also question whether a $1 billion liquidation is even significant in the current bullish environment.

Leverage amplifies price movements on both sides

Total cryptocurrency market capitalization. Nguồn: TradingView

The negative price swing on April 7 resembles the rally that took place two days earlier. Tuy nhiên, retail traders deploy leverage by using perpetual futures contracts (hoán đổi nghịch đảo), which can amplify price corrections.

A 5% move is enough to liquidate traders using 20x leverage, and exchange order books tend to become thin below that level, as traders seldomly have orders in place.

CÓ)USDT order book. Nguồn: Binance

Như được trình bày ở trên, there is $4.6 million worth of bids down to $1.15 for Cardano’s ADA in the above example. Behind the 5% ngưỡng cửa, there’s only $1.9 million down to $1.06, hoặc là 12% below last trade.

Thin order books are a gold mine for scalpers and arbitrage desks. Once retail markets enter highly leveraged positions, there are multiple incentives to push down the price and trigger liquidations.

Aggregate liquidations. Nguồn: Bybt

Today’s 12-hour, $1.4 billion liquidation might seem excessive, but this aggregates the entire futures markets. hơn thế nữa, this represents a mere 3% trong tổng số $46 tỷ lãi mở. Had this movement taken place some six months ago, the figure would have been north of 12%.

Tuy nhiên, implying that liquidations triggered the drop is not the best answer, as those are only triggered when markets drop 4% hoặc hơn. Although analysts may never fully understand what has triggered the correction, a “buy the rumor, sell the newsevent could have taken place after Coinbase presented its quarterly earnings.

The funding rate is high but not abnormal

It’s also important to review how high the funding rate was and, quan trọng hơn, for how long. Even if the eight-hour fee reaches 0.20%, tương đương với 4.3% mỗi tuần, this will not force longs to close positions.

BTC perpetual futures 8-hour funding rate. Nguồn: Coinalyze

Như được trình bày ở trên, the average funding rate across top exchanges did not rise above 0.10%, which is substantially lower than the late February levels.

It is natural during rallies for long traders to enter excessively leveraged positions, and this situation can last from a couple of hours to weeks.

Sometimes retail traders turn into sitting ducks

Whales and market makers likely knew that the exchange order books were thin and that retail traders were excessively leveraged. Như vậy, one cannot discard today’s price action being a premeditated maneuver.

Tuy nhiên, arbitrage between exchanges and futures markets happens almost instantly, so no trail is left. Analysts and pundits might pinpoint numerous reasons for today’s move, but the available data suggests that leverage itself isn’t to blame.

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Nguồn: Cointelegraph

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