Bitcoin Bears Rack Up Millions In Losses As Bitcoin Moves Upwards
Quick Take
- Bitcoin makes its first substantial price movement in several days shooting back above $9,300.
- Bitcoin’s move this morning resulted in millions in Bitcoin short liquidations.
After seeing little price action for several days, Bitcoin jumped past $9,300 Tuesday morning. Bitcoin’s sudden jump resulted in millions in short liquidations. According to cryptometer.io, over $28 million in Bitcoin shorts were liquidated in the last 24-hours on BitMEX alone.
Bitcoin shorts enable Bitcoin traders to make a profit when the cryptocurrency falls. To short Bitcoin, traders sell Bitcoin at market price and then buy back the Bitcoin at a lower fiat price and net the difference.
Some traders also utilize leverage trading to open Bitcoin shorts. Through leverage trading, traders can utilize larger trading power to amplify returns.
Also known as margin trading, leverage trading allows traders to borrow a portion of the position. For example, a trader opening a one Bitcoin short with 5x leverage will only fund the position with 0.20 Bitcoin. The trader will borrow the other 0.8 Bitcoin. If Bitcoin falls and the trader closes the position they will effectively realize gains on the entire one Bitcoin position (excluding fees), rather than just the 0.20 Bitcoin they contributed.
However, leverage trading comes with its own inherent risks. With 25x leverage, a 4% move in the wrong direction can result in liquidations, meaning traders will lose their entire initial contribution. In other words, losses and gains are amplified at the same rate when utilizing leverage.
Bitcoin Gears Up For Another Massive Expiry
Following last month’s record $1 billion expiry, covered by The Crypto Associate, the Bitcoin options market is due for another large expiry towards the end of this month. Data from Skew, a cryptocurrency analytics platform, shows that over 58,000 Bitcoin worth of options are due to expire on July 31.
Bitcoin options allow buyers to purchase or sell Bitcoin at a specified price on or before the option’s expiry date. Option buyers can choose to purchase calls and puts.
Bitcoin calls allow buyers to purchase Bitcoin at a specific price, also known as the strike price. If Bitcoin rises above the strike price, traders can exercise the option and purchase Bitcoin at the strike price and net the difference between the spot price.
On the other hand, Bitcoin puts allow buyers to sell Bitcoin at the strike price. If Bitcoin falls below the strike price, traders can exercise the option and sell Bitcoin at the strike price which is above the spot price.
Traders pay a specific price for the option, also known as the premium. If the price action does not follow what the trader anticipated, they can decide not to exercise the option, therefore minimizing their downside to just the premium they paid for the option.
Cover image by B.K Heleth on Unsplash
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