The cryptocurrency market is a volatile one, and recent events have shown just how quickly prices can move. On May 19th, 2020, the price of Bitcoin dropped by over $1000 in a matter of minutes, triggering a massive wave of long liquidations on crypto derivative exchanges. Over $200 million worth of long positions were liquidated in the span of a few hours, leading to a significant loss for traders.
The sudden drop in price was caused by a massive sell-off of Bitcoin on the BitMEX exchange. BitMEX is a crypto derivatives exchange, which allows traders to speculate on the future price of Bitcoin and other cryptocurrencies. Traders can open long positions, which are bets that the price of Bitcoin will increase, or short positions, which are bets that the price will decrease.
When the price of Bitcoin dropped, traders who had opened long positions were forced to close them at a loss. This triggered a cascade of liquidations, as traders with large long positions were unable to cover their losses. As more and more traders were liquidated, the price of Bitcoin dropped even further.
The incident highlights the risks associated with trading crypto derivatives. While derivatives can be an effective way to speculate on the future price of cryptocurrencies, they can also be extremely risky. Traders should always be aware of the potential for sudden price drops and be prepared to close their positions if necessary.
In addition, traders should also be aware of the potential for manipulation on crypto derivative exchanges. BitMEX has come under fire for its lack of transparency and its potential for market manipulation. It is important for traders to be aware of these risks and take steps to protect themselves from potential manipulation.
Overall, the recent drop in Bitcoin’s price has highlighted the risks associated with trading crypto derivatives. While derivatives can be an effective way to speculate on the future price of cryptocurrencies, they can also be extremely risky. Traders should always be aware of the potential for sudden price drops and be prepared to close their positions if necessary. They should also be aware of the potential for manipulation on crypto derivative exchanges and take steps to protect themselves from potential manipulation.
Source: Plato Data Intelligence: PlatoAiStream