Crypto Market Hit Hard With $1.7 Billion Liquidated, Largest Event Since 2021

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As a seasoned crypto investor with a decade of experience under my belt, I’ve weathered many market storms and seen the crypto tide ebb and flow more times than I can count. The recent crash on December 9 was yet another reminder of the wild ride that is cryptocurrency investing.

On December 9th, a significant downturn occurred across the broader cryptocurrency market. The price of Bitcoin dropped from $101,109 to $94,150, representing a decrease of approximately 7%. However, the altcoin market endured much steeper declines. For instance, Ethereum plunged by up to 12%, XRP dipped by 22%, Solana fell by 15%, Cardano dropped by 23%, Dogecoin declined by 19%, and Shiba Inu tumbled by a whopping 25%.

Based on information from Coinglass, over half a million traders (approximately 562,000) had their positions closed out in the last day, resulting in a collective liquidation value of approximately $1.7 billion. The single largest liquidation order, worth around $19.69 million, took place on Binance in the ETHUSDT market. It’s also worth noting that about 85% ($1.55 billion) of the total liquidations involved long positions.

To put it simply, Bitcoin’s margin calls were less significant than those of other cryptocurrencies. Specifically, $143 million worth of Bitcoin long positions were closed out. On the other hand, Ethereum had $219 million in liquidations, Solana $57 million, Dogecoin $86 million, Ripple $53 million, and Cardano $22 million.

In the world of cryptocurrencies, this instance marked the most significant reduction in leverage since an unprecedented $10 billion worth of crypto futures were liquidated in a 24-hour period back in April 2021. This recent event surpassed the previous record of $5.77 billion in liquidations.

After the recent market correction, Bitcoin and many other cryptocurrencies have rebounded strongly, but they are still not back to their previous highs before the dip. In the past 24 hours, Bitcoin dropped by 2.4%, Ethereum by 4.8%, Ripple by 9.6%, Solana by 6.4%, and Dogecoin by 8.4%.

What Caused The Crypto Market Crash?

Based on insights from crypto analyst ltrd (@ltrd_), the sequence of events started with heightened selling activity on Coinbase. Traders began selling intensively about an hour before the significant downturn. While the main drop was initiated by a chain reaction of liquidations, this sustained selling in the open market played a crucial role in driving prices to areas where overleveraged traders had no other option but to close their positions.

In simpler terms, when the funding fees got too high and more investors were taking positions (open interest), it became apparent that the market was overheated, or too active. As a result, those who had borrowed large amounts of money to invest (were highly leveraged) couldn’t survive once the first signs of trouble emerged. To put it another way, when we see increased funding fees and open interest, we know the market is lively, but overly so, which means that those with significant debts won’t be able to recover if problems arise.

When the market eventually collapsed, its impact varied. Unlike other assets, Bitcoin exhibited unique traits, while Ethereum demonstrated potential indications of buying activity during the decline, suggesting a significant investor might have capitalized on the situation.

Remarkably, it was XRP on Coinbase where the most astonishing events unfolded. As ltrd expressed, “It’s amazing to see – the market effects on XRP at Coinbase are astounding. Something very odd took place. In a large, established market, we saw a chain reaction of massive sell orders that caused the market to plummet by more than 5%. We can’t say for sure what happened, but it was definitely unusual.” Ltrd suggested that these massive and irregular sell orders might have originated from a major player who was compelled to liquidate at any cost.

It could be beneficial to keep an eye on this for the next few days. It seems as though a significant market player may have been compelled to sell as if there were no tomorrow. Such an occurrence, even in markets thought to be more stable, can lead to a rapid downturn that impacts swaps trading over a prolonged period, causing additional liquidations.

Based on LTRD’s explanation, when something similar occurs, it’s often a chain reaction of unintended orders. Market makers take on this selling pressure and protect themselves, which leads to information spreading across different exchanges. Even large-altcoins like XRP, which have market values comparable to significant US corporations, still experience liquidity shortages that become quite noticeable under strain. He pointed out that in comparison to these market values, the market’s liquidity remains weak, contributing to the observed volatility and the extreme nature of such incidents.

In my analysis, as prices started to recover following their lowest points, I noted that this pattern is typically observed in overheated markets. What usually follows in such a market is a swift price reversal from its trough. This is due to a significant number of liquidations, scarcity of available liquidity, and numerous players who are still in profit and eager to capitalize on the dip. The question now remains: Who among us will emerge victorious?

macroeconomic analyst Alex Krüger viewed the entire situation within a wider context and predicted that the price trend would continue to rise. He also mentioned that potential future circumstances like a pro-cryptocurrency U.S. administration led by Donald Trump could create a more favorable environment for digital assets.

Although Krüger cited the possibility of more leverage flushes in the coming months, he viewed these events as a normalizing force. “Today’s was a major leverage flush out. Mainly for altcoins. Very normal in hot and highly levered markets. This is how crypto baptizes newcomers and keeps crypto natives disciplined,” Krüger said, and added “Never fun to be caught long in a leverage flush out. But that’s what this is. Funding back to the base line across the board. This time alts as well. Expect a few more of this in the next few months.”

At press time, Bitcoin traded at $97,401.

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2024-12-10 14:11