Liquidations in the crypto markets have risen to unusual levels lately amid a plunge in the value of many cryptocurrencies. The liquidations span different cryptocurrencies, with hundreds of thousands of traders affected across the globe.
- To the unaware, liquidations occur when a crypto exchange or brokerage sells a trader's position because they can no longer meet margin requirements. Many exchanges have mechanisms to kickstart automatic liquidations when a user’s margin trading position falls below a specific percentage of the original value.
$680 million of crypto liquidations occurred on Tuesday, the 8th of November, according to data from Coinglass. In comparison, liquidations on the previous Tuesday, the 1st of November, amounted to just $38 million. Over $660 million of liquidations have occurred in the past 24 hours, Coinglass shows.
The crypto market has suffered price slumps this week fueled by the apparent insolvency of FTX, a top-five crypto exchange. FTX has been unable to fulfill withdrawals after customers rushed to remove $6 billion worth of tokens from the platform in 72 hours.
The saga began last week following a news report that Alameda Research, a trading firm with close ties to FTX, had $8 billion of liabilities on its books and most of its equity in FTT, a relatively illiquid token– FTT is the native token issued by the FTX exchange.
Shortly after the report, Binance, the biggest crypto exchange by trading volume and a major FTX rival, announced that it was selling all its FTT tokens, dragging the price considerably.
The price slump of FTT made FTX unable to fulfill customer withdrawals, causing a panic that led people to exit their crypto holdings on other exchanges at unusually high rates. The mass sell-off has weighed down the price of many cryptocurrencies such as Bitcoin, Ethereum, and Solana.
According to CoinMarketCap, Bitcoin is down 18% over the past seven days, Ethereum has slipped 22%, and Solana has slipped 56% in the same period.
Every market plunge leads to a higher-than-usual level of liquidations, so the current situation isn’t surprising. Liquidation levels may continue to increase if the price slump continues, or cool down if the crypto markets recover in the short term.