By now it will no longer be a secret what has happened around the cryptocurrency Terra (LUNA) and its associated stablecoin TerraUSD (UST). Yet every day we see new consequences emerging from this crash.
What exactly is a liquidation?
Investors can choose different financial instruments, for example derivatives, at some platforms. These bitcoin (BTC) derivatives allow traders to open both a long, where the trader is betting on a price increase, and a short, where the trader is betting on a price decrease. In case the trader goes long on bitcoin, for example, but the price falls, he may reach his maximum loss which will automatically close his position.
On May 14, we saw from CoinGlass data that bitcoin derivatives traders saw over $1.2 billion in liquidations on trading platforms. So this is double from the previous week, when we saw $542 million in liquidations. Things were already not going very well in the market. Other data from Coinglass shows that $1 billion in crypto evaporated in just one day.
However, this is not very surprising since it did not stop there. The total size of the cryptocurrency market dropped by about $300 billion when bitcoin dropped from $35,500 on May 8 to $30,100 on May 14. At the time of writing, we do stand slightly higher again, at $30,500.
Turmoil in the crypto market
Long positions, from the derivatives mentioned earlier, were the first to take a big hit as a result. We saw many long positions being liquidated and then changed to short positions. Nevertheless, these were not more fortunate as the market eventually appeared to recover.
This could be because the Terra storm temporarily died down. Many platforms have removed the token. In addition, LUNA cannot fall any further anyway. At the moment, the price of the troublemaker is $0.0001831.