Crypto liquidation occurs when a leveraged trading position in cryptocurrency is forcibly closed by an exchange or lending protocol. This happens when the value of the collateral falls below a predetermined maintenance margin level. It is an automated process designed to prevent further losses for the lender or exchange. Liquidations can cause rapid price movements in volatile markets.
Context
News reports frequently highlight large-scale crypto liquidations during periods of high market volatility, particularly when prices experience sharp declines. These events can trigger cascading sales, exacerbating downward price pressure across the market. Understanding liquidation thresholds and their impact is critical for participants in decentralized finance (DeFi) lending and derivatives markets. The frequency and volume of liquidations serve as a key indicator of market stress.
The crypto market has bounced back strongly, recovering $380 billion after a record $19 billion liquidation event, driven by easing US-China trade tensions.
A sudden tariff announcement by President Trump caused the crypto market to experience its largest liquidation event ever, shifting sentiment to extreme fear.
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