Few expected the crypto market crash that transpired yesterday. At times, Bitcoin was so volatile that the services of leading cryptocurrency exchange Coinbase temporarily went down, their status page suggests.
No group felt the volatility as much as traders, which are especially vulnerable drops due to their utilization of leverage. Leverage allows traders to borrow money from exchanges, thus increasing potential returns but also increasing the risk.
Crypto Traders Lost Over $1 Billion Worth of Positions Yesterday
Bitcoin and the crypto market didn’t perform so well yesterday.
For those who missed the memo, in the span of about two hours, the leading cryptocurrency tanked from $9,700 to a low of $8,100 — a rapid drop of over 15%. As the drop came so fast, few were ready to handle the effects it would have on their portfolio.
Immediately, as Bitcoin started to slide, leveraged traders began to register that their positions had been liquidated.
According to data compiled by CryptoDiffer, the aggregate value of liquidations on May 10th was $1.22 billion — 30% came from Huobi, 23% from BitMEX, OKEx, and Binance, and another small percentage from upstart platform FTX.
As a note, just because $1.22 billion was liquidated doesn’t mean that $1.22 billion was lost. Due to leverage, the actual value of coins that traders lost may be under $1 billion.
Data from CryptoDiffer (@CryptoDiffer on Twitter). The graph is of the aggregate value of the crypto market’s liquidation events on May 10th.
What happened was due to the fact that investors expected more upside ahead of the halving, they were leveraged long. That’s to say, they borrowed money from exchanges betting that Bitcoin was going higher.
But since prices dropped so quick, they were unable to maintain their positions due to a lack of margin, of cryptocurrency, in their accounts. This resulted in this mass liquidation event, the biggest since the March 12th “Black Thursday” crash.
Validation of “HODL” Mindset
To many Bitcoin investors, the data above is validation of the “HODL” investment mentality. “HODLing” coins means to not trade, sell, or otherwise lose your cryptocurrency. It’s a mindset that promotes patience and long-term growth over speculation and short-term trading.
While noted cryptocurrency critics like Nouriel Roubini and Peter Schiff have lambasted this mindset, analysts are hopeful that it will work as we move forward into 2020 and beyond.
One top trader made this much clear when he argued that there is a confluence of four fundamental factors that makes him “struggle to see a bearish case for Bitcoin.” These factors are as follows:
Bitcoin’s block reward halving is taking place in approximately one day.
Bitcoin’s narrative of being a hedge against economic downturns is “showing potential,” likely referencing how the cryptocurrency is the best-performing asset this year despite a global recession brewing.
BTC has seen incredible strength from the $3,700 lows seen in March.
Exchange dynamics are shifting in favor of growth, as buying increases and sell-side demand may slow.
Photo by Cristian Escobar on Unsplash