- Over $20 million in Bitcoin shorts were liquidated yesterday as Bitcoin climbed past $9,000.
- Bitcoin is now trading in the $9,500 range.
Bitcoin has begun to recover from the price dip following the halving event. Following the Bitcoin halving event, the market sentiment began to die off as discussed by Johnson Xu (Chief Analyst at TokenInsight). However, it seems that the market sentiment is recovering as Bitcoin reclaims the $9,000 range.
According to cryptometer.io $20.1 million in Bitcoin shorts were liquidated on BitMEX in the last 24 hours due to Bitcoin’s recent price surge. BitMEX is one of the largest and most established cryptocurrency derivatives platforms.
Longs and Shorts
Longs and shorts allow traders to leverage their trades to amplify profits on relatively minor Bitcoin price movements. However, it is important to note that opening longs and shorts is considerably riskier than traditional trades, so investors should be adept and risk management and be aware that they may lose their entire position.
A Bitcoin long allows traders to bet on Bitcoin’s price rising using leverage. For example, if a trader wants to open a 1 Bitcoin ($10,000) long with a 5x leverage, they would fund the position with 0.2 Bitcoin from their own wallet and borrow the other 0.8 Bitcoin. If the price action follows what the trader anticipated and the trader closes the position at $10,500, the trader would have a net approximately 25% after paying back the lender. Using 5x leverage the trader was able to net 5x the profits we would’ve traditionally made.
However, if the price moves against what the trader anticipated (down), the trader will now lose at 5 times the normal rate. In a 5x leverage position, if the price declines 20% the trader will lose the entire position. Earlier this month, when Bitcoin’s price declined over 12% in mere minutes e millions in Bitcoin longs were liquidated, resulting in massive losses.
On the other hand, Bitcoin shorts allow investors to profit on Bitcoin’s price declining. For example, if a trader wants to open a 1 Bitcoin short at $10,000, they will borrow 1 Bitcoin at market price and sell it immediately. If the trader decides to close the short position at $9,500, they would buy one Bitcoin at $9,500 and pay back the lender, netting $500 in profit before fees.
Like opening Bitcoin longs, opening Bitcoin shorts is very risky. For example, a trader shorting at a 5x leverage will lose their entire margin deposit/collateral if the price moves up 20%. Thus, traders should be cautious when opening both leveraged long and short positions.
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