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Excessive leverage leads to a chain liquidation? 8 data charts to help you understand the market situation

Excessive leverage leads to a chain liquidation? 8 data charts to help you understand the market situation

ChaincatcherChaincatcher2024/12/11 15:00
By:Foresight News

Traders on Coinbase began to sell off heavily an hour before the massive crash occurred.

Author: Ltrd

Compiled by: 1912212.eth, Foresight News

This crash is the largest liquidation since 2021. I want to analyze the entire situation from a microstructure perspective.

Excessive leverage leads to a chain liquidation? 8 data charts to help you understand the market situation image 0

First, we need to identify where the selling pressure is the greatest. We found that traders on Coinbase began to sell heavily nearly an hour before this massive crash occurred.

Excessive leverage leads to a chain liquidation? 8 data charts to help you understand the market situation image 1

Of course, the largest drop was triggered by a chain liquidation, but this persistent selling pressure played an important role in pushing the price into the area where leverage was being forcibly liquidated. So how do we determine that the market is overheated? It's simple—through the increase in funding rates and the number of open contracts. These two factors are the driving forces of the current market, indicating that people are using excessive leverage.

After the crash, ETH saw strong buying interest. The relative strength in recent days is also quite evident—could someone be buying?

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I personally enjoy analyzing market impact. If I could only focus on one feature in the market, it would definitely be market impact. Here, you will see some shocking things—the market impact of XRP on Coinbase is quite significant.

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In a relatively mature large market, we witnessed a series of large sell orders, which caused the market to drop over 5%. We are still unclear about what exactly happened, but this is clearly unusual.

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You can see that these sell orders are not normal. This situation may be worth monitoring in the coming days. Perhaps a large player was forced to sell.

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When similar situations occur, it is usually a chain reaction of forced liquidation sell orders. Market makers absorb this selling pressure and hedge, causing signals to spread across major exchanges. For perpetual contract exchanges, this means that stop-losses and liquidations are triggered, and the final impact becomes more pronounced, especially when this happens within minutes.

For coins like XRP, even with a market cap comparable to the largest companies in the U.S., they can soar by hundreds of percentage points. Relative to market cap, the liquidity of XRP in the market remains poor.

In a hot market, the next common phenomenon is a rapid price reversal from the lowest point. At this time, there will be a large number of liquidations, liquidity constraints, and many profitable players looking to buy the dip.

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The volume chart shows the cumulative trading volume during the crash. Surprisingly, both USDC and FDUSD had significant trading volumes, but ADA's trading volume was particularly large.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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