On-Chain Analysis: BTC Drop Liquidates $165M in Long Positions

3 mins
7 May 2022, 12:35 GMT+0000
Updated by Ryan James
7 May 2022, 12:52 GMT+0000
In Brief
  • The bearish engulfing candle of May 5 led to $165 mln in Bitcoin long liquidations.
  • A day earlier, $45.5 mln in short positions were liquidated.
  • Bitcoin appears to be going through a crab market.
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In today’s on-chain analysis, BeInCrypto looks at the indicator of long and short liquidations in Bitcoin futures. In the face of big moves in the BTC price over the past few days, both bulls and bears have lost funds.

First, a bullish engulfing candle on May 4 triggered the liquidation of $45.5 million in short positions. But the very next day an even larger bearish engulfing candle liquidated as much as $165 million long positions. Looking ahead to price action throughout 2022, Bitcoin is in a clear sideways trend.

Analysis of BTC price movement

Since the beginning of 2022, Bitcoin has been in a sideways trend, which some analysts call a crab market. BTC reached a low of $32,933 on January 24 and a peak of $48,280 on March 28. The trading range is therefore about $15,000, or 46.5% measured from bottom to peak.

Since the one-year peak, there has been a multi-week decline that has brought the BTC price to its current level near $36,000, or -25.5%. It is worth mentioning that Bitcoin has not closed a daily candle below the important support level at $35,000 in 2022.

Chart by Tradingview

The last 3 days have been full of violent moves of BTC both up and down. On May 4, Bitcoin generated a bullish engulfing candle with a magnitude above 5% (green arrow). Although usually, such a candle is a continuation signal of an upward move, a sharp decline occurred a day later.

On May 5, Bitcoin formed a large bearish engulfing candle of 7.9% (red arrow). Not only did the decline completely negate the previous day’s increases, but it also led to the loss of a rising support line (yellow). It was in place from the yearly low of January 24.

Long liquidations

In an environment of such a volatile Bitcoin market, we have recently seen huge liquidations of futures contracts. However, due to the larger downward movement, traders in long positions have suffered the most losses.

According to data from CoinGlass, the total liquidation of long positions on May 5 was nearly $165 million. This is the highest value since January 21, when BTC generated more than 10% bearish candle with the highest trading volume this year.

Chart by CoinGlass

Also high, albeit slightly lower than the one above, readings are provided by a chart from Glassnode. According to this on-chain data provider, the total long liquidations of Bitcoin futures contracts were nearly $127 million on the day of the decline. The difference in these values is probably due to the different range of exchanges that the two analyst firms take into account.

Chart by Glassnode

Short Liquidations

Despite the record liquidation of long positions, also traders betting on decreases did not avoid substantial losses recently. The reason, of course, was the bullish engulfing candle of May 4.

According to data from CoinGlass, on that day short liquidations were recorded at the level of $45.5 million. On the other hand, according to Glassnode, short liquidations amounted to $25 million. It is worth mentioning that traders betting on declines last suffered bigger losses on April 25, when BTC broke out above $40,000.

Chart by Glassnode

Crab market

There is another interesting indicator that shows well how much today’s situation resembles a sideways crab market. It is the so-called Futures Long Liquidations Dominance.

This indicator measures the percentage of long liquidations, i.e. long liquidations / (long liquidations + short liquidations). A level of 50% means that the same number of long and short liquidations took place. Values above 50% mean more long positions were liquidated, and values below 50% mean more short positions were liquidated.

Looking at the chart of this indicator over the last month, we can see that it behaves almost like a perfect oscillator. This means that both sides – bulls and bears – systematically lose. This is a typical sign of a sideways trend.

Chart by Glassnode

An interesting poll was conducted on Twitter by well-known on-chain analyst @TXMCtrades, who works with Glassnode on a daily basis. On May 5, he asked his followers a question about the sentiment over the next 12 months regarding risky assets.

A slight majority indicated a crab market (38.3%), ahead of a bull market (37.1%), and a bear market (24.6%). The survey was statistically valid with 1915 respondents.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.


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