Massive Leveraged Liquidations Hit Bitcoin: What Does It Mean for the Price?

Author: Pedro Solimano Source: DLNews Translation: Shan Ouba, Golden Finance

Summary

• The situation in the Middle East suddenly became tense, and traders closed their leverage.

• Bitcoin once fell to a two-month low and now rebounded slightly.

• In the past 24 hours, $420 million worth of trading positions were liquidated.

On Monday, faced with the sudden change in the situation in the Middle East, traders "pulled the escape rope" and closed their leveraged positions. The U.S. airstrike on Iranian military facilities over the weekend caused a sharp pullback in the cryptocurrency market, causing Bitcoin to fall below $100,000 at one point, and then rebounded slightly to $102,000.

According to CryptoQuant data, when Bitcoin fell to a two-month low, the estimated leverage ratio (ELR) also experienced a sharp drop. ELR measures how much leverage traders use relative to the actual Bitcoin held on exchanges. It is an indicator of market risk appetite, and the sharp drop shows large-scale risk aversion.

That is, traders have taken the initiative to close highly leveraged positions or have been forced out. According to Coinglass data, more than $420 million in positions were liquidated in the past 24 hours, more than two-thirds of which were long positions. This large-scale risk aversion indicates that traders are wary of market volatility and prefer to flee the market rather than seek potential gains from a rapid rebound in Bitcoin.

However, it is interesting that this phenomenon runs counter to the "hedge against geopolitical shocks" commonly advocated by most Bitcoin supporters. At present, some traders have even built bearish positions on Bitcoin in the options market, betting that it may fall to $95,000 this week. In Polymarket's crypto market expectations, investors are also pessimistic about Bitcoin's recent performance. Within a week, the market's expectation of the probability of Bitcoin setting a new high in July has dropped sharply from 70% to 10%.

The current pessimism may be more of an overreaction rather than a complete loss of confidence. Arthur Hayes, co-founder of BitMEX, said that the current weakness of Bitcoin is only temporary and expects Bitcoin to still reach $250,000 this year.

Although Bitcoin has rebounded, if the situation in the Middle East continues to deteriorate, the market situation is still uncertain.

Jonathan de Wet, chief investment officer of digital asset trading company Zerocap, said in an email: "The potential variable today and this week is the Strait of Hormuz, which is a key channel for about 20% of the world's oil transportation. Once Iran blocks the channel, it may become a new test site for Bitcoin's 'safe-haven properties.'"