· ·

Did mass liquidations on BitMEX cause Bitcoin’s sudden drop?

Did mass liquidations on BitMEX cause Bitcoin’s sudden drop?

Bitcoin has stabilized around the $8,600-mark hours after a ferocious sell-off led on BitMEX saw price decline more than 13 percent, liquidating more than six hundred million long contracts on the Seychelles-based exchange, according to data on Datamish.com.

The decline, Bitcoin’s largest intraday plunge in months, saw the largest cryptocurrency by market capitalization shed 13.5 percent in USD in under two hours starting at around 18:00 U.T.C. and ultimately seeing the coin go as low as $8,200 by 19:30.

BTC price

The sentiment seems largely unchanged after the drop, however, with the Crypto Fear & Greed Index, an aggregation of various sentiment indicators, indicating a slight move towards fear.

BitMEX liquidations to blame?

A confusion of theories have surfaced to explain the cause of the savage decline, yet a compelling one is that it was fuelled—perhaps not started—by a series of liquidations and margin calls on 100x leverage crypto derivatives giant BitMEX.

As Bitcoin broke out of its monthslong consolidation between $9,300 and $10,950 to the downside (denoted below by red lines), the leveraged long positions would have outrun their margin and been liquidated—effectively creating a waterfall of market sell orders forced by the platform, and exacerbating the decline.

Source: TradingView

The data seems to indicate as much. BitMEX saw volumes worth $2.5 billion during the sell-off, ultimately making the day one of the exchange’s biggest trading days in months, and seeing almost 6 percent of all long liquidations to date this year occur during the two-hour window.

Concerns that leveraged derivatives exchanges such as BitMEX can collapse Bitcoin’s price in this fashion have circulated for years and have apparently inspired a number of non-leveraged initiatives, perhaps most topically Bakkt’s just-launched futures product.

As reported previously by CryptoSlate, Monday, the first day of Bakkt’s physically delivered contract, saw a fraction of the debut of its leveraged, cash-settled competitor, the CME Bitcoin futures contract.

Posted In: , , Analysis
Invest with AMFEIX

Like what you see? Subscribe to CryptoSlate

Get our daily newsletter containing the top blockchain stories and crypto analysis straight to your inbox.

Sign up to stay informed
Jonnie Emsley

Jonnie Emsley

Fintech Journalist @ CryptoSlate

Jonnie is a writer and blockchain enthusiast based in Ho Chi Minh City, Vietnam. Discovering new corners of the world and emerging tech trends makes him tick.

View author profile

Commitment to Transparency: The author of this article is invested and/or has an interest in one or more assets discussed in this post. CryptoSlate does not endorse any project or asset that may be mentioned or linked to in this article. Please take that into consideration when evaluating the content within this article.

Disclaimer: Our writers' opinions are solely their own and do not reflect the opinion of CryptoSlate. None of the information you read on CryptoSlate should be taken as investment advice, nor does CryptoSlate endorse any project that may be mentioned or linked to in this article. Buying and trading cryptocurrencies should be considered a high-risk activity. Please do your own due diligence before taking any action related to content within this article. Finally, CryptoSlate takes no responsibility should you lose money trading cryptocurrencies.