Crypto experienced the biggest liquidation event in history yesterday evening and over the night. It is still unclear how much leveraged positions were liquidated in dollars, but some numbers say 16 billion, others over 19 billion (and counting).
To have a level of comparison, during the FTX collapse, 1.6bn USD were liquidated, and in the early phases of imposing Covid lockdowns (probably for the most part on March 20th, 2020), the liquidations accounted for 1.2bn USD.
The majority of positions being liquidated over the night were long, when the market crashed suddenly (BTC reached on some exchanges a level of 102k, from reports; alts got hit even harder), but also shorts got liquidated as the market started to recover sharply and they were caught off guard as well.
That shows, once more, how easily can money be lost with leverage. Yes, the reverse is true as well, but if you lose everything (as many do because they don't have the required discipline and knowledge), it is much harder to recover after such a loss. I feel sorry for everyone who lost on leverage the last couple of hours. Even though I understand how to use leverage in various scenarios, I prefer not to do it unless it's a hedge, and I haven't done something like that in a long time. That gives me the peace of mind that I won't get margin calls in the middle of the night or something like that, and I'd have to quickly react and have the dry powder to be able to manage to do it on the short notice.
It's practically why we see a domino effect in crypto (or anywhere else where derivatives hold the majority of the TVL) even for assets that don't have direct leverage exposure. People who have margin calls, would sell anything they have liquid and at pretty much any price in order not to be liquidated. Especially if they panic, which is usually the case. Sometimes they make good calls under the time pressure, other times they don't, but it's mostly a gamble at that point.
What happened? Why the crash?
There is always a trigger for such a major crash. All markets are jumpy, so they react first and check later. That means they sometimes react to false signals and manipulations, which doesn't mean this is one of them.
What seems to have been the trigger this time?
Well... This short message of Trump on Truth social:
Like always, Trump over-plays his statements, making them look better for him and worse for the other side.
At a careful look, these may be steps in a process of an escalate-to-deescalate scenario. Trump and Xi are likely to meet in person in a few weeks. China is the largest producer and exporter of rare earths, which are essential for many electronic devices, but particularly impacts the high-tech military production or AI, among others.
China started to leverage this dominant position earlier this year, by requiring export controls for 7 of the rare earths it exported. A few days ago, it added 5 more to the list, together with any China-made tech needed to extract, process, or manufacture any product containing these rare earths.
This hits particularly US military industry hard, especially since they specifically announced they would automatically deny license for any military-linked business, including AI with potential applications in the military sector...
That explains the reaction of Trump.
The question is... Are we in a escalate-to-deescalate scenario, or this will end up really bad, really soon?
It is my impression that on the short-to-medium term, the western world has been taken almost completely off guard, although things were known for many years now.
Regarding crypto... I think it was an overreaction, mostly fueled by the snowball effect of the margin calls. I would be very cautious about thinking of a long ending to the bull market though. If everything goes well (and it might or might not), we will have a pretty short and explosive finish of the bull market, which might end well before the end of Q4, if these geopolitical and even military tensions continue to build up.
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This post has been shared on Reddit by @uwelang through the HivePosh initiative.
It is annoying when random politics happens and fuck up the market like this... The west is on its twilight, it's been obvious for some years already
Yeah, I agree. It sucks when this happens. Here's a quote (I looked it up, it isn't exactly the one I was looking for) that says a lot about this:
Looks like folk wisdom warns us that good times are rare.
It is struggling, for sure. Western hegemony (which only ends with the US) is likely close to its end. It comes much quicker than many would have anticipated, despite the already known cycles. But it's different when you live through the times, than when you read about them.
That quote reminds me something similar "life is a little moment of happiness in between long sad times"
Yep, that's the one I was looking for. Sometimes it feels true, other times maybe we are more on the positive side of things.
It's amazing what a 10% BTC drop can do to the markets and altcoins! I saw some top coins having dumps over 50% in a few minutes...
How did we survive those 25-30% pullbacks of BTC in the past? :)
Btw. someone should ban Trump's Twitter account... 😂
Yes, I saw that too! We... matured... LOL!
Seriously now, we had less leverage in crypto. That's how.
That worked out really well, didn't it? 🤣
These were very useful clarifications from you. Well done for posting. I hope that everything goes well in the coming days and weeks and that the worst does not happen.
Thanks. There's very little we can do to influence the course of these events. We can't really put our head in the sand either, because while we can't influence them, they will influence us, and we need to at least know what's going on, and hopefully make the best decisions given the circumstances. Right now, the outlook seems bad for next year...
I personally just wrote an article about this too, its impact is really felt on Hive. $16 to $19 billion liquidated overnight is insane. Wiith geopolitical tensions like this, it feels like the market could swing even more unpredictably in the coming weeks, I just hope correction happens soon, I thought hive at 17 cents was bad, this blows my mind
I saw this morning how low Hive went, even briefly... But that only shows that someone with liquid HIVE or assets on HE really wanted out at any price and quickly to not be liquidated on their margin calls. That's what I believe happened. And it happened to many other crypto assets too, where those in need of liquidity sold hastily at any price.
I believe that's the best explanation to this, a panic sell so they don't totally go under
I'm not sure what the likelihood of escalation is but better becoming prepared for it as Trump can be an unpredictable showman. Who knows what China also have on their sleeves.
It's indeed an overreaction in the crypto space. Leverage always cuts both ways, and I think the flush is generally good for the market. A bit of a discount to cautiously buy the dip :)
I don't know either what exactly will follow on the geopolitical side.
Crypto market direction may be highly susceptible to those developments, particular with economic effects. As for buying the dip, yes, it is an option.
Margin has always been something risky, and I am not surprised. As for AI and Trump, I can't make any conclusions. Let's see how things go.
The good thing is that if people do it right and don't bet everything one way and at one time, they can still recover, and they'll do it faster with leverage.
Yeah, I'm not sure either if they are both bluffing or this is for real this time. I tend to believe the Chinese don't bluff on the rare earths thing, since this is an escalation of something they already have going for a few months. I don't know if it'll work as they think/hope it will, though. But one new development that I heard since I wrote the post, is that they won't meet in person when Trump goes to SE Asia in a few weeks.
That decision from Trump affected the entire crypto market
!BBH
This time, Trump was the one reacting. Or we could consider it was a series of escalations and de-escalations, and now escalations again, from both sides, which led to this. The difference is Trump (and not only him) announces critical decisions on X (or in his case, on Truth Social), even before they are taken, sometimes as a negotiation technique. That causes a lot of mixed signals and overreactions in the markets, as "negotiation" levers are pulled through public channels, and sometimes only directed to the public opinion, not to the other party they are negotiating with.