- Bitcoin continues to rise, liquidating millions in shorts.
- BitMEX alone has seen over $40 million in Bitcoin short liquidations in the past 24-hours.
Bitcoin’s continual rise has resulted in even more losses for Bitcoin bears. According to cryptometer.io, BitMEX alone has seen over $42 million in Bitcoin short liquidations in the last 24-hours.
Bitcoin short positions allow traders to bet on Bitcoin’s price falling in the future. Some traders also utilize leverage which can amplify gains but also amplify losses at the same rate.
Leverage trading allows traders to leverage greater trading power. For example, to open a 1 Bitcoin position with 10x leverage, the trader only contributes 0.10 Bitcoin to the position and borrows the rest. By doing so, the trader has the trading power of one whole Bitcoin and, therefore, amplifies potential returns on the 0.1 Bitcoin by approximately 10x.
While leverage trading can help traders amplify gains, it can also amplify losses at the same rate. For example with 10x leverage, a 10% move in an opposite direction may result in liquidations and the trader losing their entire initial contribution to the position. Therefore, traders trading with large amounts of leverage may face liquidations during price fluctuations.
Bitcoin Options Volume
With high levels of volatility, both crypto derivatives have seen a surge in popularity this year.
More specifically, Bitcoin options have seen a new all-time high for daily trading volume, according to Skew, a cryptocurrency analytics platform.
Buying Bitcoin options offer traders the choice to purchase or sell Bitcoin at a predetermined price on or before the options expiry date. When purchasing options, traders can choose between calls and puts.
Bitcoin calls allow option holders to purchase Bitcoin at a specific price, also known as the strike price. If a trader purchases a call option and the price of Bitcoin rises past the strike price, the trader will be able to net the difference between the spot and strike price.
Bitcoin puts allow traders to do the opposite. If a trader purchases a put and the price of Bitcoin falls below the strike price, the trader will be able to sell Bitcoin at the strike price and net the difference between the spot price.
Traders pay a specific price for the option, also known as the option 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.
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