The price of Bitcoin (BTC) and Ethereum’s Ether (ETH) plunged by 13% and 21%, respectively, within minutes on Aug. 2. The move liquidated more than $1 billion worth of futures contracts as BTC/USD dropped from around $12,000 to as low as $10,550.
BTC/USD 1-hour chart. Source: Tradingview
There appear to be two main reasons behind the sudden cascade of liquidations. First, the volume in the cryptocurrency market tends to drop during weekends. Second, the market was heavily swayed to longs or buyers.
Cryptocurrency market snapshot, Aug. 2. Source: Coin360
Surprise weekend move hits the crypto market once again
The cryptocurrency market tends to see large liquidations during the weekend. The liquidity often drops as there are fewer active traders in the market. Lower volume leads to massive price movements, as cryptocurrencies become more vulnerable.
Mass liquidations become more likely during the weekend because one large liquidation could trigger a cascade of liquidations. When a long contract gets liquidated, as an example, it forces the buyer to market sell, causing selling pressure.
As hundreds of millions of dollars worth of long contracts began to get liquidated, Bitcoin and Ether dropped rapidly. Bitcoin declined from $12,000 to $10,600 within 15 minutes, while ether declined from $417 to $300.
But mass liquidations happened several times in the past five months. Most notably, on the so-called “Black Thursday” on March 13, $1 billion worth of liquidations occurred. Similarly, right before the halving on May 11, the price of Bitcoin dropped to $8,100 resulting in mass liquidations.