Monday’s ‘brutal’ short squeeze was the biggest in Bitcoin history – Arcane
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They bet against Bitcoin — and paid the price.
Monday’s short squeeze was the biggest in crypto history, according to a crypto research firm that says the futures market is becoming more vulnerable to such squeezes.
Oslo-based Arcane Research says that the US$757 million in short positions liquidated on Monday eclipsed the previous record of US$652 million in short liquidations set on December 17, 2020.
A couple of interesting charts from this week:
$757 million worth of shorts was liquidated yesterday, leading the open interest denominated in bitcoin to fall by 47,000 BTC.
— Arcane Research (@ArcaneResearch) July 27, 2021
And in fact, the “brutal” squeeze was “very likely far larger than $750 million,” Arcane says.
After the May 19 crash, Binance changed its API (data feed) to only publish one liquidation a second, which means the liquidation data from the exchange published by Bybt is “severely underestimated,” Arcane said.
The squeeze pumped Bitcoin from under $35,000 to nearly $US40,000 on Monday morning.
Bitcoin perpetual futures contracts on Binance briefly spiked as high as US$48,000, meaning there was an US$8,000 difference between the spot and derivative price.
Arcane said that the changing dynamics of the crypto derivatives market were making it more susceptible to short squeezes.
Up until early 2020, the Seychelles-based BitMEX crypto exchange dominated Bitcoin futures trading.
But BitMEX “broke” during a March 12, 2020 flash crash, causing over US$700 million in Bitcoin long liquidations and forcing the exchange to enter “maintenance mode”.
Also, US authorities last October charged BitMEX chief executive Arthur Hayes and three co-owners with allowing money laundering to take place on the platform.
All this led to Binance dethroning BitMEX as the clear market leader in derivative crypto trading, Arcane said.
There’s a difference in how the platforms operate. BitMEX only accepts Bitcoin as collateral, meaning that if Bitcoin rises, short-sellers are insulated somewhat because the value of their collateral has risen as well.
But Binance also accepts stablecoins as collateral, Arcane noted.
Now 45 per cent of the open interest in the Bitcoin futures market uses stablecoins or dollars as collateral, up from 14 per cent in early January 2020.
“This makes the market susceptible to more frequent short squeezes.”