The crypto market plummeted due to massive borrowing rates and the default of Evergrande bonds.
Bitcoin dropped nearly $4,000, a sharp drop last night, taking the broader cryptocurrency market with it and causing more than $500 million in “long” settlements.
Financing rates were high across all categories on Tuesday, prompting some traders to comment on an impending market decline. “Open interest has reached an ATH. Let’s do a little bullish shake before we go up,” tweeted Lex Moskovski, CIO of Moskovski Capital.
‘Settlements’, for the uninitiated, occur when leveraged positions are automatically closed by Stock Exchanges/Exchanges as a “safety mechanism”. Futures and margin traders – who borrow capital from Exchanges (usually in multiples) to place larger bets – offer a small collateral value before making a trade.
Financing fees, on the other hand, are periodic payments to longs or shorts traders based on the difference between the perpetual contract market and the spot price. Financing rates make the perpetual futures contract price close to the index price.
Higher funding rates usually mean a movement in the opposite direction, causing a cascade of futures product sales.
The market was subject to this behavior. As Coinfloor data shows, nearly $500 million worth of ‘longs’ – or traders who bet on higher prices – have seen sales. $235 million of them occurred at Binance, while $196 million occurred at OKEx.
Bitcoin alone was responsible for $200 million in sales, followed by Ethereum ($96 million), Polkadot ($37 million) and XRP ($27 million).
172,378 traders were settled overall, with the largest settlement order taking place on Bitmex – an XBTUSD valued at $10 million.
Source: Crypto Slate