Why the market can lose ten percent in an hour with nobody having decided to sell

What does trading with leverage mean?

The reverse is symmetrical and arrives sooner. If the price falls ten percent, those thousand dollars are gone. But you never get that far: the platform closes the position when the margin no longer covers the potential loss, usually somewhere around five or seven percent depending on the leverage.

The word liquidation describes exactly what happens. It isn’t a sale decided by whoever opened the position, it is a sale carried out by the platform to get its own loan back. It doesn’t wait for a better price and it doesn’t ask permission. It sells into the market, immediately.

Why does one liquidation cause another?

That somebody else gets closed out in turn, their position is sold, the price falls further. It is a domino that feeds itself, and the important thing to understand is that none of those sellers decided to sell. Every one of those sales is carried out by a contract when a number touches a threshold.

This is why crashes here are so fast. It isn’t that everybody suddenly changes their mind about bitcoin’s future. It’s that leveraged positions are bunched at levels close to one another, and when the first one goes the rest come down in a line. The domino stops when the positions left to close run out — not when reassuring news arrives.

How big is it, when it really happens?

89 percent of those positions were betting on a rise, and the single largest was worth $36.78 million on Ethereum — one trader, nearly thirty-seven million, in an instant. These are numbers from the derivatives data providers. We can’t reproduce them, and we report them as theirs.

What we can measure is what the price did, and here comes the part almost nobody tells. On our daily closes bitcoin was worth $96,946 on 5 December, $97,276 on the 9th, $96,593 on the 10th — and $101,125 on the 11th, higher than where it started. Five billion of positions wiped out, and on the daily chart 4.3 percent.

Who does it hurt, and who does it not?

Whoever had a leveraged position, on the other hand, didn’t lose because they were wrong about the market. They lost because the price passed through a level. In December 2024 anyone long at ten times leverage was closed out while bitcoin, seven days later, closed higher than when they opened. They were right about the direction and lost everything anyway.

It is also why, when a crash comes out of nowhere, the first thing to look at isn’t the news but the liquidation figure. If it is high, what you are watching is the derivatives market cleaning itself out; the selling pressure is artificial and ends on its own. If it is low and the price falls anyway, then somebody who decided to sell is selling — and that is another story.

How do you stay out of trouble?

The second rule is about size, not direction. A position that forces you to watch the chart is too big, whatever the leverage. The cascades last hours and nobody forecasts them; the only defense that works is having counted on them when you opened the position.

The third is a reading, not an action. When the market loses ten percent in an hour, before concluding that something terrible has happened it is worth checking how many positions were closed out. Often nothing terrible happened — what happened is that too many people were on the same side with somebody else’s money.

The three rules: don’t use leverage, or keep it under three and count on losing the whole amount you committed; size the position so you don’t have to watch it; when a crash comes out of nowhere, check the forced-liquidation figure before looking for an explanation.