Preview
Spot the odd one out
Preview
Preview
Derivatives liquidations behind the Thursday collapse
The collapse saw harsh and sudden volatility after a prolonged lull – in line with our warnings of stability breeding instability in crypto markets.
Preview
Derivatives liquidations drastically exaggerated the Thursday collapse. A rapid vicious cycle of forced selling in thin markets pushed prices lower, resulting in even more underwater trades entering liquidation. The collapse saw harsh and sudden volatility after a prolonged lull – in line with our warnings of stability breeding instability in crypto markets.
Thursday, August 17, saw 14,390 BTC being liquidated, the largest BTC-denominated liquidation volume in perps since June 13, 2022, amidst the meltdown of 3AC and Celsius. Nonetheless, notional daily open interest decline is a more precise measurement of the carnage due to under-reported liquidation data from certain major exchanges, as elaborated further below.
Open interest in BTC perps plunged by 17.35% on Thursday. This is the fifth largest daily decline since March 2021, surpassed only by the December 4 crash in BTC, the FTX collapse, the Chinese mining ban, and the El Salvador hype collapse.Institutional traders handled the carnage better than crypto natives. Open interest across all venues apart from CME collapsed on Thursday, as illustrated in Figure 18. CME’s OI increased by 12.2% while volumes also surged. CME’s significant OI growth, in addition to the declining futures premiums (page 4), suggests increased activity on the short-side indicative of CME traders adding fuel to the fire, repositioning quickly during the hostile market conditions. Above, we mentioned how certain exchanges underestimate their liquidation data. Binance and Bybit liquidation data have been underreported since 2021, as elaborated in further detail here. OI changes better illustrate the gravity of the meltdown on Bybit and Binance. Despite significantly more modest liquidation volumes, Binance and Bybit saw OI plunge by 24.6k BTC and 24.7k BTC, respectively, far higher than OKX and Deribit.
