After reaching over $1 trillion on Wednesday morning, the total market value of cryptocurrencies dropped to $900 billion as traders reacted to rumours about the liquidity problems at renowned exchange FTX. In the last 24 hours, traders who were caught off guard liquidated long bets worth almost $700 million. Long bets are wagers on higher prices.
A steady rebound was put on hold as bitcoin (BTC) and ether (ETH) both dropped more than 8% in the previous day to levels last seen in early October. Other significant cryptocurrencies including XRP, dogecoin (DOGE), and cardano (ADA) declined by over 12%, while solana (SOL), whose notable backer Sam Bankman-Fried is, fell by 25%.
Liquidations cost futures tracking bitcoin and ether a total of $390 million, while liquidations for SOL futures totaled $40 million. FTT futures had a significantly lower $27 million in liquidations, indicating that the sales of spot tokens were primarily responsible for the sharp decline.
When an exchange forcibly terminates a trader’s leveraged position as a result of a partial or complete loss of the trader’s initial margin, this is referred to as liquidation. When a trader is unable to meet the margin requirements for a leveraged position, it occurs.
FTT tokens of FTX were in abundance on the balance sheet of Alameda Research, a cryptocurrency trading business managed by Sam Bankman-Fried, who also owns FTX. This meant that rather than relying on a stand-alone asset like a fiat money or another cryptocurrency, Alameda was built mostly on a coin that a sister firm created.
Industry participants sold FTX-linked coins as a result of the report’s rumour that FTX would become insolvent in order to limit their own potential losses. Competitor Binance, which had more than $500 million worth of FTT on its books, began to sell off its holdings, which led to a 24-hour drama that finished with Binance signing an agreement to buy FTX, which is now widely seen as being insolvent.
As traders reacted to potential dangers of contagion, such market patterns alarmed the cryptocurrency markets. Prices for FTT decreased by 70% to revert to mid-2021 levels.
