Liquidations occur when leveraged futures positions fall to a certain threshold. For example, a position using 10x leverage would get liquidated or turn worthless if the price of BTC drops by 5%.
What triggered the mass Bitcoin liquidation fest?
If the Bitcoin futures market is highly overleveraged and overcrowded, a minor price movement can trigger mass liquidations.
According to analysts at Santiment, a data analytics firm, an address was responsible for the second-largest Bitcoin transaction of the year, as Cointelegraph reported.
More than 2,700 BTC were transferred right before the drop, which were bigger than the 2,000 BTC inflow seen before the March 2020 crash when Bitcoin dropped below $4,000. The analysts said:
“As we noted yesterday, there was an 11x exchange inflow spike that initiated #Bitcoin’s price correction from its $58.3k #ATH.