Crypto investors who bet on their stash rising in value — as shares often do in the last week of December in a phenomenon known as a Santa rally — got a nasty surprise when almost 80 percent of long positions in crypto futures were liquidated in 24 hours from Monday, Dec. 27 UTC to Tuesday, Dec. 28.
Liquidations happen when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin, Coindesk reported. This happens mainly in futures trading, which only tracks asset prices, as opposed to spot trading, in which traders own the actual assets.
Almost $300 million in liquidations took place across several crypto futures starting Monday evening UTC after crypto markets took a nosedive, according to data from analytics tool Coinglass. More than 109,000 traders’ positions were liquidated in 24 hours.
Nearly 80 percent of the $300 million in liquidations was in long positions owned by traders who bet that the price would rise. Crypto exchange Binance saw $119 million in liquidations, the most among major exchanges, and FTX saw $78 million in losses.
The price of Bitcoin rose close to $52,000 Monday before falling as low as $48,183 with more than $94 million in liquidations. Bitcoin was trading at $48,689.65 as of this writing, according to Coingecko.
Ethereum had more than $57 million in liquidations while Solana (SOL) and Terra (LUNA) traders saw $9 million in losses. Compared to Bitcoin, the relatively smaller liquidation numbers for altcoins “imply recent price surges for SOL and LUNA were mainly spot-driven,” Shaurya Malwa wrote for Coindesk.
Since the 1960s, shareholders have seen positive gains in December more than 66 percent of the time. A Santa Claus rally describes a sustained increase in the stock market in the last week of December through the first two trading days in January. Reasons for a Santa Claus rally include tax considerations, optimism on Wall Street, and the investing of holiday bonuses, according to Investopedia. Another theory is that some large institutional (and somewhat pessimistic) investors go on vacation this time of year, leaving the market to retail investors, who tend to be more bullish.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
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