Word reaching Nairametrics indicates that there is a possibility of $900 million worth of on-chain liquidations to be triggered if the price of Ether, the native token of the Ethereum blockchain and the world’s second-largest cryptocurrency by market capitalization, falls to $1,100, as the crypto bear market intensifies.
Liquidation refers to when an exchange forcefully closes a trader’s leveraged position due to a partial or total loss of the trader’s initial margin. It happens when a trader is unable to meet the margin requirements for a leveraged position (fails to have sufficient funds to keep the trade open). Liquidation occurs in both margin and futures trading.
Speaking with Ajibola Lawal, Investment Lead at Kaicho Capital, he explains how these figures came to be and the effect on the broader market.
What Lawal is saying
Explaining how he came about his findings, Ajibola Lawal stated, “Using our in-house proprietary models that monitor on-chain liquidations, we can observe that there is another close to $1billion worth of liquidations in danger of being triggered at prices between 1100 and 1200 across decentralized platforms: Aave, Maker and Compound. If triggered, these could drag Ethereum prices into 3 digits.”
- When asked about the likelihood of Ether trading at these prices since as of the time of this writing, Ether currently trades $1,261, down over 15%, he stated, “It’s 50-50 that this cascade comes through. Because in the same way that we can see their liquidations, the players at risk can attempt to defend their positions (as they’ve done in the past). The challenge that they face is if the prevailing selling pressure blitzes right through their attempts.”
- When asked how this potential liquidation event will affect the broader cryptocurrency market as the market capitalization currently trades $1 trillion, Lawal had this to say. “The market cap of Crypto plummeting below a trillion has far-reaching effects on investor confidence in the broader crypto Landscape. However, in the end, that figure is a mental milestone. And thus, market participants can make of it what they will,” he said.
- When asked about his advice to crypto traders in these times of market downturns, he stated, “An advice to crypto investors is of two tiers: To the general investor, we will echo what we have shared with our private clientele since November last year and have done so publicly on Social media since the beginning of the year— Leave the trading to the professionals; the free ride party is over for now. Crypto isn’t going away. DCA tiny amounts over time, in quantities that you would spend buying Suya anyway.
- “To traders, the party is over. If your system does not grant you market insights that are precognitive, then it is in your best interest to sit this one out. A good way to look at it is thus: You are in a dark forest, and you are the only participant without night vision. There is only one way this ends. Previous success will only show you how non-ergodic the markets are.”
- On when the bottom will set in, Lawal said, “We don’t call bottoms at Kaicho. We do not believe in making pronouncements that we can’t back with indefatigable data. We do have key indications that selling may be abating. We have a mental timeline for which we tell our clients to return to the field and reassess. And it is no earlier than November.”
What you should know
- Earlier, Nairametrics reported that over 180,000 traders lost approximately $520 million as Bitcoin traded below $25,000, a price point, not seen since December 2020 as the market selloff seen throughout the year intensifies.
- Bitcoin liquidations accounted for the most as expected, representing $225.72 million of the total liquidations in the last 24 hours. Ether came in second, accounting for $167.26 million and in third place, SOL, accounted for $13.21 million.
- The blood bath seen in the market all through the year began in January as asset whales began selling of their holdings in what is termed as whale redistribution. Asides from the Russian – Ukraine war, the selloffs then got intensified when the U.S. Fed hiked its interest rate to 1%, the largest increase since 2000, as it handed down its policy decision in May.
- We are currently seeing the effects of these events and the policy decision made by the federal reserve. The U.S. Fed’s increase in the interest rate brought about a strong dollar index (a measure of the strength of the U.S. dollar). As of the time of this writing, the dollar index is trading at a 20-year high, currently above 104 basis points.
- Also weighing in is the recent inflation report in the U.S. which points to the strong possibility of the U.S. Fed increasing the interest rate to 75 basis points.