Bitcoin recently topped $29,000, sparking a surge in liquidations of around $112 million over the past 24 hours.
Liquidations in the cryptocurrency market occur when traders close their positions, usually because a margin call or stop loss order is triggered.
Large liquidations lead to increased volatility as large numbers of positions are liquidated and assets are sold off. This creates a domino effect, triggering further liquidations and exacerbating price volatility.
At the time of writing, Bitcoin was trading at $28,606, up around 7% over the past 48 hours. Despite the gains, the digital asset has yet to hit a local high of $29,346 on March 24.
The market is closely watching Bitcoin’s price performance, as a break above local highs could signal a more sustained rally.
Interestingly, centralized exchanges still have relatively low funding rates. This suggests that the current bull market may not be driven by leverage, which can be both positive and negative for Bitcoin’s price action.
On the other hand, rallies that are not driven by leveraged positions can be seen as more stable as it reduces the risk of mass liquidations due to margin calls. In this case, the market can sustain growth without facing a sharp decline as leveraged traders are forced to liquidate their positions.
On the other hand, low funding rates can also mean traders lack confidence, with many opting not to leverage their positions in anticipation of a possible price reversal. This could hamper bitcoin’s ability to sustain its upward momentum as traders remain cautious and unwilling to take additional risk.
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According to USA Today