Nearly $1 billion worth of Bitcoin (BTC) futures contracts were liquidated on Jan. 13, a day after the big shakeout. The continuous loop of liquidations is causing extreme volatility and large price swings in the cryptocurrency market.
Total Bitcoin liquidations. Source: Bybt.com What are futures liquidations, and why are so many Bitcoin positions being liquidated?
In the Bitcoin futures market, traders borrow additional capital to bet against or for Bitcoin. The technical term for this is leverage, and when traders use high leverage, the liquidation threshold gets tighter.
For example, if a trader borrows 10 times the initial capital, a 10% price move to the opposite direction would cause the position to be liquidated. Once it is liquidated, the position becomes worthless and all of the initial capital is lost.
When Bitcoin saw the big 20% drop from $41,000 to $30,500 on Jan. 12, nearly $2 billion worth of futures contracts were liquidated.
However, within 24 hours, another $1