Crypto traders experienced a significant setback on Tuesday, marking the largest wipe-out of leveraged long positions in three months, as the momentum from ETF-driven rallies in digital asset prices sharply reversed. According to data from CoinGlass, widespread declines led to over $307 million in liquidations of leveraged crypto long positions within the last 24 hours. This represents the most substantial amount of liquidated longs in a single day since August 17, when Bitcoin (BTC) experienced a rapid drop from over $28,000 to about $25,000 within minutes.
The recent downturn occurred as BTC saw a 4% decline to $35,000 despite a generally favourable environment for risk assets following a lower-than-anticipated October inflation reading. This reading prompted a surge in stock prices and a substantial drop in bond yields. The decline extended across the cryptocurrency market, with Ether (ETH) also experiencing a 6% fall to dip below $2,000.
This recent market action contrasts with the preceding weeks, which were characterised by “short squeezes” as increasing asset prices led to the liquidation of losing leveraged bets on lower prices. Liquidations, where an exchange is compelled to close a leveraged trading position due to the partial or complete loss of the trader’s margin, can contribute to heightened price volatility as traders cover their positions, eliminating excess leverage from the market.
The significant volume of liquidations indicates that the sudden price decline caught many investors off guard, with 88,667 traders facing liquidation, according to CoinGlass. Bitcoin traders experienced the highest liquidations at $133 million, followed by ETH traders with approximately $70 million.
A report from JPMorgan analysts last week expressed the view that the recent surge in cryptocurrency prices was becoming “overdone,” cautioning that investors had become excessively optimistic about the potential impact of the spot BTC exchange-traded fund approval on asset prices.