The central theses
- The total market cap for crypto fell from $ 2.15 trillion to a three-week low of $ 1.78 trillion in just a few hours on April 17.
- The sudden downturn took many overfunded traders by surprise, causing liquidations of around $ 9 billion.
- Most of the liquidations have been on Binance, while FTX and Bitfinex have proven to be some of the safest exchanges to trade on.
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Many investors were ripped out of their positions after the crypto market collapsed more than 17% on April 17th. Data shows that Binance accounted for the majority of the losses incurred.
Over $ 4.4 billion liquidated at Binance
This week the market experienced one of the worst flash crashes since the beginning of the year. The incident responsible was coal and gas accident in Xinjiang, China, which resulted in a power outage and forced the bitcoin miners to a standstill.
After the bitcoin mining hashrate dropped by half, cryptocurrency prices reacted quickly. The total market cap for crypto fell from $ 2.15 trillion to a three-week low of $ 1.78 trillion in a matter of hours, surprising many overfunded traders. The sudden downturn sparked a cascade of automatic sell-offs in a chain reaction called the resulted in roughly $ 9 billion in liquidations.
Bybt data shows that long and short positions worth $ 4.43 billion were liquidated on Binance alone.
Liquidations on Binance occur when the initial collateral and realized / unrealized gains / losses are below the maintenance margin. In this case, all open orders will be canceled immediately.
Binance uses a protocol referenced as “Smart Liquidation” in order to avoid a complete liquidation of the user’s position if possible. But temporary difficulties surfaced during the recent crash which resulted in massive losses despite this policy.
Other liquidation policies
according to to market data provider The TIE, problems with Binance are common in times of high volatility. In contrast, FTX and Bitfinex have proven to be some of the “least leveraged and safest exchanges to trade” thanks to their liquidation policies.
On-chain analyst Willy Woo too approved that FTX dealers “survived” the flash crash. The exchange will significantly reduce the likelihood of recovery through a three-stage liquidation mechanism.
Having managed to withstand problems during the crash, FTX is now available Accounts According to Sam Bankman-Fried, CEO of FTX, for more than 10% of the global trading volume in cryptocurrencies.
A lesson for traders?
Given the current state of the bullish cycle, the latest flash crash could be a lesson for overfunded traders.
High periods of volatility are usually followed by problems on trading platforms caused by an increase in visitor numbers. An exchange’s inability to handle high traffic while prices are falling can prevent any trader from reducing their losses.
Therefore, implementing a robust risk management strategy is a must to keep profits and reduce losses.
Disclosure: At the time of writing, this author owned Bitcoin and Ethereum.
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