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This widespread use of leverage creates a fragile system where a sharp price decline can trigger a cascade of long liquidations, resulting in millions or even billions of dollars worth of assets being automatically sold off in a short period. These massive liquidations often cause rapid price drops, sometimes falling below key support levels — such as $4,000 or $100,000 — which in turn lead to more liquidations and panic selling.
Most short-term price movements in crypto are driven or exacerbated by these liquidations, creating a cycle of sharp dips and quick recoveries known as V-shaped rebounds. Interestingly, these recoveries are often triggered by short squeezes—where traders betting against the market are forced to buy back assets as prices rise, fueling rapid price rebounds.