Clearing leveraged positions, traders lose $4 billion

There was a huge clearing of leveraged long positions yesterday. Traders collectively lost about $4 billion in Bitcoin (BTC) and Ethereum (ETH) futures

in a few hours. Sponsored Sponsored

In addition, the funding rate for perpetual futures turned negative for the first time in over a month. Moreover, the Fear and Greed

Index has fallen from extreme greed territory. It is currently trading at 47, which corresponds to neutral sentiment.

Clearing Open Pos

itions

The cryptocurrency market saw a flash crash yesterday, with the size of Bitcoin

‘s

daily red candle exceeding $10,000. Counting from its peak at $53,000 to its bottom at $42,800, the largest cryptocurrency saw a 19% decline. Most altcoins suffered even more, losing up to 30% of their value.

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Leverage traders

suffered the most, with their long positions sometimes being completely wiped out. Yesterday’s clearing of leveraged positions for Bitcoin and Ethereum was the largest since the April-May 2021 declines, with

open interest on perpetual futures falling from $13.3 billion to $9.46 billion

.

This means that the decline eliminated leveraged positions worth almost USD 4bn.

Clearing leveraged positions, traders lose $4 billionCzyszczenie pozycji na kontraktach futures Open positions for perpetual futures / Source: Glassnode

This is the biggest bump in the market this month. The value of open positions on perpetual futures is back to levels seen on August 8.

The

clearing of $4 billion in leveraged positions yesterday was confirmed by Glassnode

in a tweet:

Negative funding rate

Another indicator that confirms the cleaning of long leveraged positions and the change in traders’ behavior is the funding rate for perpetual futures. When the rate is positive, long positions periodically pay off short positions. Conversely, when the rate is negative, short positions periodically pay off long positions.

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Yesterday, for the first time since the beginning of August, the funding rate for all cryptocurrency exchanges became negative. This means that more and more traders are playing for further declines and are willing to pay extra to hold their short positions.

Clearing leveraged positions, traders lose $4 billionClearing leveraged positions, traders lose $4 billionFinancing rate for futures / Source: Glassnode

Cryptocurrency trader @dilutionproof pointed out the negative funding rate in a tweet today. He highlighted that it illustrates Bitcoin’s shorting trend and added:

Now that there has been a cleansing of long positions with excessive leverage, could this be fertile ground for a nice bounce? (Or is it a little early?)

The end of extreme greed

One more macro indicator reacted to yesterday’s tumble. The Fear and Greed Index fell yesterday from extreme greed at 79 to neutral sentiment at 47. This indicator too is currently back to its early August value.

Clearing leveraged positions, traders lose $4 billionClearing leveraged positions, traders lose $4 billionFear and Greed Index / Source: alternative.me

Recently, the Fear and Greed Index gave neutral readings as Bitcoin experienced its first wave of gains after rebounding from a long-term low at $30,000. Then, the largest cryptocurrency stabilized its price in the range of $38,000 – $42,500 to continue its rise a few days later.

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