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On March 15, 2021, $738 million in Bitcoin longs is liquidated at the start of the week. Sixty percent of the contracts in these liquidations were leveraged more than 20 times. This meant that traders are removing Bitcoin from exchanges. An rise in debt raises selling demand and has traditionally culminated in a price reversal.
On March 17, 2021, alone, there were Bitcoin long liquidations worth $500 million. The map below reveals that there is excessive greed on derivatives markets, with over 60% of contracts leveraged 20x or more.
Historically, long liquidations have shifted the price pattern in recent bull markets. So, what is the safest course of action for a market trader?
Long liquidations explicitly suggest that if trading with leverage, shorts could be the way to go for the time being. The price on futures exchanges is almost inevitably going to have an impact on the spot market.
Liquidations on futures exchanges have a strong effect on sentiment, which influences the spot market. One of the primary reasons for the effect of liquidation on spot exchange rates and portfolios is that most retail traders are shifting from spot to derivatives exchanges in favour of leverage.
This is an outstanding moment for institutional traders to purchase Bitcoin below $55000. With rising liquidation on futures exchanges, Bitcoin’s active supply has consistently decreased. This could not be as beneficial to the price as it was before when the supply deficit story contributed to new ATHs.
Retail dealers, on the other hand, who are waiting for an excuse to buy or HODL will do so until the next correction. Increasing leverage on derivatives markets is proving lucrative for traders opening short positions, despite having a negative effect on interest.
What’s more intriguing is that a price decline may be beneficial at this stage in the business cycle. The whole story of Bitcoin outflows from exchanges and whale movements has a long-term effect on price; moreover, regular trading volume and activity on futures exchanges can be counted on for making short-term adjustments in open place and leverage.