Ethereum Soars Triggering Millions In Short Liquidations
Quick Read
- Ethereum soars over 10% liquidating millions in Ethereum shorts.
- The decentralized finance ecosystem has seen exponential growth this year.
Ethereum climbed over 10% nearly touching $270 Wednesday. The cryptocurrency’s sudden jump triggered an influx in short liquidations. According to cryptometer.io, over $10 million in Ethereum shorts were liquidated in the last 24-hours on BitMEX alone.
Ethereum shorts allow traders to make a profit when the price of Ethereum falls. To short Ethereum, traders sell Ethereum at the current market price and then repurchase it when the price falls. By doing so, traders are able to net the difference in price while still ending up with the same amount of Ethereum.
Some traders also utilize leverage to open Ethereum shorts. Through leverage, traders can trade with larger trading power and therefore amplify returns.
Leverage trading allows traders to borrow a portion of the position they are opening. For example, a trader opening a one Ethereum short with 10x leverage will only fund the position with 0.1 Ethereum and borrow 0.9 Ethereum. The trader will then sell the combined 1 Ethereum at market price. Assuming the price action follows and moves downwards, the trader can then repurchase the 1 Ethereum at a lower price and net the difference.
However, while leverage trading can amplify returns, it also amplifies losses at the same rate. With 10x leverage, a 10% move in the opposite direction can result in liquidations, meaning traders stand to lose their entire contribution to the position.
The Year Of DeFi
Decentralized finance (DeFi) is the application and integration of blockchain and cryptocurrency within the financial sector. As reported previously by The Crypto Associate, the DeFi ecosystem has seen exponential growth this year.
According to DeFi Pulse, the current value locked in the ecosystem stands at an eye-watering $3.35 billion.
After opening the year at just over $700 million, the value locked in the ecosystem has surged by over $2 billion since the beginning of this year.
Cover image by Paweł Czerwiński on Unsplash
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