Two days ago, on June 7th, the crypto market experienced a flash crash, driving the price of Bitcoin from $72k to $68k in a few hours. But why did it happen ?
What Happened
More than 300 million dollars were liquidated in a single hour :
Furthermore, we can see that the price precisely liquidated a huge amount of longs :
To quickly explain “longs” and “shorts” trades : When you trade with leverage, you can bet that the price will go up or go down. If you really believe that the price will go up, you make a “long” and, depending on your leverage, you borrow more money than you have to increase your position. For example, if the price goes up by 10% and you used 2x leverage on a $100 position, you would gain 20%, which is $20 profit.
Conversely, if you “short” Bitcoin with an initial balance of $100 and use 2x leverage, you would have a position of $200. So, if the price goes down by 10%, your position would be $220, yielding a $20 profit from your initial $100.
However, there is a risk of liquidation if you are wrong. The more leverage you use, the closer your liquidation zone is to the price where you made the trade. For example, with 2x leverage, if the price drops by 50%, you will lose all your money. With 10x leverage, a 10% price drop will result in a total loss of your $100.
That’s why it’s important to identify liquidation zones, as prices often move to liquidate these zones.
Why It Happened ?
The US unemployment rate likely played a role in this event.
The US unemployment rate likely played a role in this event. It increased from 3.9% to 4%. Normally, this would have been good news for the market because it would mean that the Federal Reserve might lower interest rates. However, the Non-Farm Payroll report, which tracks the number of people employed during the previous month (excluding the farming industry and accounting for approximately 80% of the workforce).
It showed unexpectedly high employment figures compared to April.
This indicate that despite the higher unemployment rate, there are still many new employment opportunities, which added to the market’s volatility.
As always thank you for reading !
My favorite Crypto Faucet : Cointiply (referral)
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Disclaimer : This is not a financial advice, you need to do your own research !
