The price action spurred $167 million of liquidations that day, according to Coinglass, with 90% of those being leveraged long positions. It was the largest leverage flush-out in a day since theFollowing Monday’s selloff, traders piled into short positions in anticipation of further declines, but a suddenbeginning Monday night lifted digital asset prices, propelling bitcoin more than 4% and back above $26,000 by early Tuesday.
Large liquidation events often mark a local bottom or top in prices as the swift price swing forces derivatives traders to unwind their directional bets. Liquidations happen when an exchange closes a leveraged position due to partial or total loss of a trader’s initial money down –"margin" – as the trader fails to meet the requirement for adding enough funds to keep the position open.
Open interest – the total amount of open options and futures contracts held by market participants – has significantly decreased following past large liquidation events, David Lawant, head of research at institutional exchange FalconX, wrote in a market update. The open interest for BTC and ETH derivatives on major exchanges has dropped roughly 38% from this year’s high and is now near at the levels seen in March, the report noted.