Over $70 Million In Bitcoin Shorts Liquidated As Bitcoin Approaches $11,000
Quick Read
- Bitcoin is rallying, approaching $11,000 early Monday morning.
- The Bitcoin options market is due for a massive expiry in just a few days.
Crypto markets continue to rally led by Bitcoin. The cryptocurrency is now up 10%, trading at the $10,800 level. Bitcoin’s surge triggered a wave of short liquidations. According to Cryptometer.io, over $70 million in Bitcoin shorts were liquidated on BitMEX alone.
Opening shorts allow traders to make a profit when the price of Bitcoin falls. They do so by selling Bitcoin at the current spot price and then repurchasing it when the price falls. In the process, the traders net the price difference and make a profit on Bitcoin falling.
Some traders also utilize leverage trading which can amplify gains but also amplify losses at the same rate.
Leverage trading allows traders to trade with greater trading power. For example, to open a one Bitcoin position with 10x leverage, the trader only contributes 0.1 Bitcoin to the position and borrows the rest. Through this, traders can make trades with one whole Bitcoin and therefore amplify returns on the 0.1 Bitcoin by approximately 10x.
However, leverage trading also amplifies losses. For example with 10x leverage, a 10% move in an opposite direction may result in Bitcoin shorts being liquidated and the trader losing their entire initial contribution of 0.1 Bitcoin. Therefore, traders trading with large amounts of leverage may face liquidations during relatively minor price fluctuations.
Bitcoin Options Gears Up For Another Massive Expiry
The Crypto Associate covered last month’s record $1 billion Bitcoin options expiry. However, data from Skew, a cryptocurrency analytics firm, shows that July is also due for a massive expiry. Over 68,000 Bitcoin worth of options are due to expire on July 31.
Bitcoin options allows purchasers to buy or sell Bitcoin at a predetermined price. Traders can choose between calls and puts.
Bitcoin calls allow traders to purchase Bitcoin at a predetermined price, also known as the strike price. If Bitcoin rises above the strike price, on or before the expiry date, the option holder will likely exercise the option and purchase Bitcoin at the strike price which is below the spot price.
On the other hand, Bitcoin puts allow traders to sell Bitcoin at the strike price. If Bitcoin falls below the strike price, the trader can exercise the option and sell Bitcoin at the strike price which is above the spot price.
To purchase an option, traders pay a premium. If the price action does not follow, traders can simply decide not to exercise the option and limit their downside to just the premium they paid for the option.
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