Bitcoin traders have become accustomed to sharp market fluctuations capable of wiping out their portfolios in minutes. However, even by crypto industry standards, such liquidations are becoming larger and happening more frequently.
Major liquidation events, where Bitcoin positions worth over $500 million are wiped out in a single 24-hour session, are turning into a regular feature of the market. This occurs because sharp movements repeatedly force leveraged traders to close their bets. According to Coinglass data covering 28 futures exchanges, Bitcoin liquidations exceeded the $500 million mark in 13 separate instances over the past year, including three cases where the amount exceeded $1 billion.
This pattern repeated on Friday when a drop in Bitcoin triggered the liquidation of approximately $1.3 billion in bullish crypto positions over one day, with the majority of this amount belonging to Bitcoin positions. These episodes highlight the fragility of a market that is already facing outflows from ETFs, risk-averse sentiment driven by artificial intelligence, continued declines in various tokens, and the aftermath of the recent $6 billion Binance hack.
On Friday, Bitcoin fell by 5.4% to around $67,600, marking its lowest level since August. According to Paul Howard, Senior Director at trading firm Wincent, 'these liquidations have become more common in the last 12 months compared to previous periods.' He added that many crypto investors seeking high-risk trades with high potential returns actively use leveraged bets, which lead to more intense losses under the influence of external events, including macroeconomic headlines affecting the market.
Derivatives make up about a quarter of the total trading volume in the crypto market. Alex Kuptsikevich, Chief Market Analyst at FxPro, noted that the use of derivatives has become 'normal even for investors with limited capital.' He also pointed to reduced liquidity before the start of the European trading session, as the lack of institutional money makes market direction less predictable. In his words, 'a point is reached very quickly where a cascade of stop orders begins.'
Nevertheless, some figures in the crypto industry caution against interpreting large liquidations as a sign of market instability. Fabian Dori, Chief Investment Officer at Sygnum Bank, wrote that 'this cascade is a function of leverage distribution across the market, not a verdict on the underlying asset,' noting that large liquidations have long been a characteristic of the crypto market.
Bitcoin, which has lost about 9% since Sunday, is moving toward its sixth week of decline amid a combination of factors. Rising oil prices and persistent inflation have strengthened expectations of further interest rate hikes by the Federal Reserve, while the return of Democrats to both chambers of the US Congress next year has increased expectations of closer regulatory scrutiny of the industry.
However, there is another theory in the crypto community: Bitcoin is losing out in the competition for speculative capital. The fall in AI stocks may create buying opportunities that appear more attractive to investors than cryptocurrencies. This would refute the popular argument of crypto bulls. Just a few months ago, some investors expected that any slowdown in the AI rally would direct speculative money into Bitcoin. Instead, the decline in tech stocks may give buyers an opportunity to take advantage of the dip, preferring AI stocks over cryptocurrencies.
Noel Acheson, author of the Crypto Is Macro Now newsletter, noted that 'when Bitcoin becomes a macro asset—which may have happened with ETFs—it competes with all other macro assets for this crown of risk,' referencing the appearance of spot Bitcoin funds in the US in 2024.
