- Crypto market wipeouts are getting bigger.
- Traders are taking on more leverage.
- Expect bigger liquidation events in the future, analyst warns.
The crypto market’s $19 billion liquidation last Friday was one for the record books.
In fact, it’s twice the amount liquidated in the next biggest market rout, which took place in April 2021, per Coinglass data.
According to Lucas Kiely, CEO of Future Digital Capital Management, a digital asset wealth manager, the risk of such mass liquidation events is increasing.
“This sell-off is a wake-up call for traders that high leverage is a very dangerous game in a market this illiquid and this close to a cycle top,” he said in a statement shared with DL News.
Liquidation is a process that occurs when a trader’s account balance falls below a certain threshold, triggering the automatic closure of their trades. It usually happens when traders take on leverage — in other words, borrowing money to juice the size of their bets.
As the crypto market — and the number of people taking on leverage — grows, such deleveraging events will likely become more severe.
At the peak of the 2021 bull market, the total value of leveraged bets on Bitcoin, the biggest crypto asset, reached just over $19 billion.
Before Friday’s crash, the amount of leveraged Bitcoin bets in the market sat at around $46 billion, according to data from Coinalyze.
Love of leverage
As the crypto market tumbled, Bitcoin fell to a low of around $107,000, a more than 12% decline on the day.
While Trump’s tariff announcement kicked off the decline, analysts have since pointed fingers at Binance, the biggest crypto exchange, for the severity of the move.
Binance acknowledged the disruptions on its platform linked to a surge in trading volume and said it would review and compensate losses directly caused by its system failures.
The recent growth of onchain perpetual futures trading also greased the wheels of the market rout.
Perpetual futures are a kind of futures contract that never expires. They’re the most popular way to trade with leverage in the crypto market.
The success of perpetual futures exchanges like Hyperliquid and Aster has contributed to the increase in leverage in the crypto market.
Still, despite the increase in leverage, the crypto market has experienced far fewer deleveraging events over the past year compared to the heady 2021 bull run.
Out of the top 10 biggest market wipeouts, eight occurred in 2021, while the other two happened this year.
Tim Craig is DL News’ Edinburgh-based DeFi Correspondent. Reach out with tips at tim@dlnews.com.
