2021-04-19 08:14:00

Cryptocurrency liquidations hit record $10 billion amid US crackdown rumours and power blackouts in China

  • Cryptocurrency traders registered $10 billion in liquidations as cryptocurrencies plummeted due to a combination of negative news.
  • The first trigger was the unconfirmed rumours of the US Treasury crackdown that linked cryptocurrencies with money laundering.
  • The second trigger was the power blackouts in China’s Xinjiang region, which is a major Bitcoin mining pool.

Cryptocurrency liquidations hit a record $10 billion in an overnight crash triggered by rumours of US crackdown, and power blackouts in China’s Xinjiang province which resulted in a 50% decline in the Bitcoin hash rate.

The total market capitalisation of cryptocurrencies – including Bitcoin – fell by a staggering $310 billion, from a peak of $2.2 trillion. This represents a 14% crash in the market value of cryptocurrencies.

Since then, cryptocurrencies have staged a recovery – the latest data puts the total market value at $2.09 trillion. However, Bitcoin is still under $57,000, down by 15% from its all-time high of $65,000 on Wednesday, April 14.

Biggest liquidation in 2021 so far

The initial crash was triggered by
unconfirmed rumours of a US Treasury crackdown on financial institutions for money laundering via cryptocurrencies.

As a result of the flash crash, investors and firms with long positions on Bitcoin saw record liquidations to the tune of $10 billion, according to
Bybt. Nearly 927,000 traders were impacted due to the crash.

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Cryptocurrency liquidations are triggered when the trader or investor is unable to fulfill the margin requirements needed for their positions – in this case, long positions, which means that the traders were bullish on Bitcoin prices.

A crash means that the Bitcoin prices went in the opposite direction, thereby increasing the margin required to maintain long positions. When traders run out of cash to maintain these positions, they are liquidated.

While Bitcoin price has crawled back up, the long positions will be marked as losses.

Before this, the biggest liquidations in 2021 were between February 20 and 23, totalling $7.16 billion as Bitcoin plunged from $56,000 to under $49,000.

Power blackouts in China also contributed to the crash

While the crackdown rumours played their part, another aspect that led to the flash crash in cryptocurrencies was power blackouts in China’s Xinjiang region.

The blackout caused half of Bitcoin’s mining network to go offline. Popular Bitcoin analyst Willy Woo states that Bitcoin’s price and hash rate are correlated. A 50% fall in the hash rate has subsequently caused a crash in Bitcoin’s price, too.

“Another probable reason could also be the massive power outage in China’s Xinjiang region, which is one of the largest mining pools which may have prompted the sell-off,” said Sumit Gupta, co-founder and CEO of CoinDCX, in a statement to Business Insider.

Industry insiders rubbish US Treasury crackdown rumours




Industry insiders called these rumours “unsubstantiated” and “dubious”.

“Market had reacted sharply based on series of unconfirmed and dubious tweets,” Vikram Subburaj, co-founder and CEO of Giottus Cryptocurrency Exchange said in a statement to Business Insider. He urged retail investors to not fall prey to these rumours and do more research before taking a decision.

CoinDCX’s Sumit Gupta struck an optimistic note. “We believe this is a temporary phase and prices will recover soon as the Treasury has already refuted the rumours,” he added.

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