After reaching above $1 trillion on Wednesday morning, the total market value dropped to $900 billion as traders responded to rumors regarding the liquidity problems at the important exchange FTX. In the last 24 hours, traders caught off guard liquidated long bets worth almost $700 million.
Long bets on rising prices.
(BTC) and ether (ETH) (1) lost more than 8% of their value on the previous day, dropping to levels last seen in early October and halting a modest rebound. Other significant cryptocurrencies, including XRP, dogecoin (DOGE), and Cardano (ADA) declined by over 12%, while solana (SOL), whose notable supporter 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 far lower $27 million in liquidations, indicating that the sales of spot tokens were primarily responsible for the sharp decline.
This is referred to as liquidation when an exchange forcibly terminates a trader's leveraged position due to a partial or complete loss of the trader's initial margin. When a trader is unable to fulfill the margin requirements for a leveraged position, it occurs fails to have sufficient funds to keep the trade open FTX came under fire after a CoinDesk published last week revealed that the native FTT tokens (2) of FTX were in plenty on the balance sheet of Alameda Research, a cryptocurrency trading business managed by Sam Bankman-Fried, who also controls FTX. This meant that rather than relying on a stand-alone asset like fiat money or another cryptocurrency, Alameda was built mostly on a coin that a sister firm created.
What was the outcome?
Industry participants sold FTX-linked coins due to the speculation that FTX would become bankrupt to limit their 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 the potential dangers, such market patterns alarmed the cryptocurrency markets. Prices for FTT decreased by 70% to revert to mid-2021 levels.