Cryptocurrency exchanges liquidated USD 500 million only between Bitcoin and Ether positions. OKEx, Binance, and FTX were the platforms with the highest losses for traders.
The price of Bitcoin (BTC) plummeted on January 5th, causing significant losses to traders who operate leveraged in various exchanges. After 24 hours, the figure was close to USD 900 million, of which exchanges liquidated about USD 550 million in BTC and Ether (ETH) transactions.
Cryptocurrency exchanges liquidated more than USD 325 million worth BTC positions alone, while ETH traders lost USD 223 million, according to CoinGlass.
Although the losses on other cryptocurrencies were more moderate, they also amounted to millions of US dollars. Prominent cases included Solana (SOL), the native token of Ripple (XRP), and Dogecoin (DOGE), with liquidations between USD 20.17 and 14 million, respectively.
Besides a sharp drop in the price of Bitcoin of around 10% in 24 hours, the whole cryptocurrency market had negative momentum. A crisis of confidence following a decline in the processing power (hash rate) of the network in Kazakhstan caused that collapse.
A large part of the miners who left China in 2021 accumulated precisely in that country, which is currently amid a political crisis. Recent cuts in electric power and Internet services abruptly stopped their contribution to the Bitcoin network by around 18%) in the Asian country.
According to CoinGlass, the drop in the price of the leading cryptocurrencies on the market caused the second-highest loss in the last three months. Traders leveraged in long positions on various exchanges lost more than USD 600 million in 12 hours.
Concerning Bitcoin, it is trading at around USD 41,705 and has accumulated a loss of USD 0.4% in the last 24 hours. Its daily trading volume is above USD 37.67 billion, and its market capitalization is about USD 798.21 billion, according to CoinGecko.
The Risks that Leveraged Positions Poses to Exchange Users
Only the balance sheets of cryptocurrency exchanges benefit from the loss of so many millions of USD dollars worth of speculative positions. That makes evident the high risk of operating those derivative products.
Unlike spot positions, in which investors exchange one asset for another, a liquidation of leveraged positions means the loss of funds. Although the profit margins favor traders when the price is higher, the opposite is true.
On other occasions, there have been waves of liquidations to leveraged traders, regardless of the trend in the BTC price. Coincidentally, a drop caused a liquidation record on Binanceat at the beginning of 2021. At times like this, traders usually lose the most money on that exchange, as it has the highest trading volume on the market.
This time, traders lost most funds (USD 264 million) on the OKEx cryptocurrency exchange. In contrast, there were lower losses on Binance and FTX, where investors lost USD 250 million and about USD 167 million, respectively.
Cryptocurrency traders look for increasingly effective ways to invest their money, for which they turn to leveraged positions. However, those financial products do not provide them with much security regarding the loss of funds. For that reason, they expect regulatory agencies to approve spot exchange-traded funds (ETFs) in the short term.
By Alexander Salazar
