It’s a cycle that’s played out several times in the crypto market: cascading liquidations triggered by an over-heated and over-levered retail market.
That’s exactly what unfolded over the weekend. Large institutional selling on Friday kicked off a wave of cascading liquidations that saw a record $1.8 billion in liquidations and more than 375,000 in total liquidations.
Ahead of the crash, open-interest across futures platforms stood close to all-time highs above $23 billion. Investors were bullish too with the long/short ratio on Binance hitting 5.7 on December 4.
Fueling the activity was an over-levered retail market, traders tell The Block. Leverage allows traders to trade with borrowed money, amplifying profits on the upside but also losses on the downside. While crypto exchanges have cut the leverage offered to clients, there’s still a lot of leverage in the retail system, according to GSR’s co-founder Richard Rosenblum.
The former Goldman Sachs oil trader told The Block
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