As the value of Bitcoin drops below $43,000, $800 million worth of digital coins have been liquidated. CoinDesk reports that nearly 90% of losses are incurred by long traders.
In the Asian trading hours this morning, Bitcoin dropped to $42,500 after trading above $47,000 yesterday. In futures tracking BTC alone, traders lost $317 million. 87% of those trades were betting on upward price movements.
Filter is a safety mechanism
Liquidation occurs when the exchange automatically closes out a leveraged position as a safety mechanism when a trader loses part or all of his or her initial margin. This rarely happens in spot trading, where the traders own the actual assets. It is popular in futures trading, which only tracks asset prices.
Alternative currency markets also declined
The drop in the bitcoin price also affected altcoins. In the past 24 hours, more than 200,000 jobs have been liquidated. Most of the losses came during American hours.
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Long positions, where traders bet on a price increase, have held more than 87% of the $800 million in liquidation. The largest liquidation was recorded on the cryptocurrency exchange OKEx – $241 million, followed by Binance with $236 million.
Ether future cash flows exceed $164 million
The Ethereum local currency futures contract saw liquidations of more than $164 million. The losses incurred by altcoin traders were relatively less. XRP and Solana traders lost $16 million and $18 million, respectively.
Open interest decreased 8%
Open interest across cryptocurrency futures is down 8%, indicating that traders are exiting their positions with a view to bearish markets. Open interest is the total number of unstable futures or derivatives contracts.
The US Federal Reserve meeting triggered the downside
Markets fell shortly after the release of the minutes of the December meeting of the US Federal Reserve. The Fed announced a record asset purchase program in 2020 when the pandemic first broke out. On Wednesday, they revealed plans to begin gradually reducing the $8.3 trillion balance sheet in 2022. After that, the major cryptocurrency fell to its lowest price in a month.
Impact of Inflation Fears
Bitcoin prices soared as more and more investors bet that the $4 trillion+ that the Federal Reserve has printed to support the struggling economy and markets will lead to higher inflation and that bitcoin can act as a store of value. Bitcoin is facing downward pressure with efforts to shrink its balance sheet. According to the meeting minutes:
Some participants felt that a significant amount of balance sheet contraction could be appropriate during the normalization process, especially given the ample liquidity in the money markets.