Bitcoin’s price breakout above $118,000 has shocked the derivatives markets, causing the largest liquidation wave in months. Over the last 24hrs, crypto positions amounting to over $1.26 billion have been liquidated. The Open Interest (OI) also reached an all-time high indicating that the market is highly leveraged and hence may be vulnerable to abrupt reversals. 

Meanwhile, sentiment has begun to flip from bearish to bullish. But with OI reaching dangerous levels and long positions piling up, analysts warn that the next round of liquidations could hit longs just as hard. 

$1.26 Billion Wiped Out; 90% of Them Being Short Positions

According to liquidation data by Coinglass, over $1.26 billion in crypto positions were liquidated over the last 24 hours. Of that, around $1.11 billion came from short positions, showing how heavily traders had bet against the rally. In general a total of 273,036 traders faced liquidations as the crypto market rallied as Bitcoin climbed to $118,200 level.

Bitcoin alone accounted for more than $661 million of the liquidations. Many traders had positioned themselves for a pullback once BTC crossed $112,000 yesterday. When the correction failed to materialize, the market punished the shorts. 

One example is James Wynn, a high-leverage trader on Hyperliquid, who lost over $27,000 in less than 12 hours after his BTC short was liquidated, according to Lookonchain. 

“James Wynn’s $BTC short position got fully liquidated in less than 12 hours, resulting in another loss of $27,921.63!” Lookonchain wrote. 

The unprecedented unwinding of bearish positions also indicates panic and other ineffective risk management by leveraged traders. Per various analysts, the recent short positions liquidation is the largest shorts squeeze in years. For example, Satoshi Stacker noted;

“This pump has liquidated $1B+ of shorts in just 24 hours, making it the largest short liquidation cascade that we have seen during this cycle.” 

Crypto Market and BTC’s Open Interest Peaks; Risk Builds

Amid the rally, both the crypto market and Bitcoin are facing an increase in Open Interest (OI). As per data by Coinglass, both have recorded an all-time in OI over the last 24 hours showing that traders are over-leveraging, hence posing a great risk of larger liquidations in case of price correction. 

Bitcoin’s Open Interest has skyrocketed to a peak of $78.6 billion as new investors jumped into futures contracts. On the other hand, the crypto market OI has also pumped and now stands at over $177 billion. This marks a new all-time high for both the crypto market and Bitcoin. This extent of exposure indicates excessive leverage, all round the market. 

High Open Interest is usually a sign of speculation. The greater the OI, the more the pressure accumulates. Under such circumstances, a relatively small price movement may cascade into forced liquidations and compound price volatility and market risk.

Such an arrangement will cause an unstable setting. In the absence of significant gains in the spot market, record OI implies that the rebound is driven more by leverage positions rather than actual demand. Any sudden turnaround is likely to sting over-positioned bulls. 

Traders Flip From Shorts to Longs Increasing the Risk

As Bitcoin gains strength and leaps upwards, traders are currently switching to long positions. Coinglass exchange liquidation heatmap shows long liquidation risk zones expanding, particularly on major exchanges. This suggests more traders are betting the rally will continue. 

At the moment, the chart above shows that Cumulative Long Liquidation Leverage on the market (shown in red on the chart) outweighs the Cumulative Short Liquidation Leverage (shown in green on the chart). 

Analyst Joe Consorti warns that the leverage ratio has shifted dangerously. “Long liquidation leverage now outnumbers short leverage 10:1 in this range. Be careful out there.” he posted, urging caution. 

Although optimism is what generates market momentum, the skewed effect can work against such a market. A flash crash or some surprise news can lead to another burst of forced selling by the overleveraged Bitcoin longs.

The present arrangement resembles the setup in previous peak markets where bullish participation made traders prone to unexpected downside shifts. This change in sentiment, together with high leverage and record OI, indicates that the market might face a turning point soon.