- Crypto markets turned red Tuesday, afternoon resulting in millions in crypto long liquidations.
- The Bitcoin options market is gearing up for another massive expiry this month.
After briefly recovering from $10,000, Bitcoin is back in the red and is currently trading at $10,550, a decline of nearly 3% since yesterday’s high. Subsequently, other cryptocurrencies have been falling, with Ethereum breaking the $340 level and making its way to $335.
The recent decline in price has resulted in a wave of cryptocurrency long liquidations. According to cryptometer.io, nearly $8 million in longs have been liquidated on just BitMEX in the last 24-hours.
Bitcoin long positions allow traders to bet on Bitcoin’s price rising 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 Market Gears Up
Despite the recent colossal Bitcoin options expiry, the Bitcoin options market is due for another massive expiry this month. According to data by Skew, a cryptocurrency analytics platform, over 60,000 Bitcoin worth of options will expire by the end of this month.
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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