Alameda Research: Over-Leveraged Liquidations Fueled Crypto Markets Bloodbath

As the global crypto markets try to recover from the latest bloodbath that saw the value of the global cryptocurrency markets crash significantly below the psychological $2 trillion this week, analysts have revealed that the correction was not entirely caused by Elon Musk’s actions or the latest China crypto ban, but largely due to liquidations of over-leveraged long positions of margin traders.

Over Leveraged Positions Crashed the Markets

The 2021 bull season saw the price of bitcoin (BTC) surpass $60k for the first time in its history, thanks to institutional monies from the likes of MicroStrategy, Elon Musk’s Tesla, and a host of others. However, barely 200 days into the exciting bull run, it now appears the bears are back again, with crypto investors pointing fingers at the “Dogefather” Musk and China.

However, in a lengthy Twitter thread entitled “lemons and lemonade,” Sam Trabucco, a quantitative cryptocurrency trader at Alameda Research, has demystified the mystery behind the latest bloodbath, making it clear that the market slump is a result of the liquidation of billions of dollars in over-leveraged long positions on crypto exchanges such as Binance. 

Trabucco notes that while the institutional crypto adoption initially started with bitcoin, the attention of these big whales gradually turned to ether and other cryptoassets, triggering a massive rally that sent numerous altcoins and even some “shitcoins” to fresh all-time highs.

“The narrative in the winter was clear: institutions were getting into crypto and that’s why crypto rallied so much. This mostly happened in BTC, but the other coins mostly had a beta to BTC so they all rallied some too,” he tweeted.

And the Bomb is Detonated 

The analyst further notes that while the rally was on, there were speculations that the price pumps especially that of ether (ETH) were low-leveraged, in essence, even when there is a correction, there will be relatively few liquidations. However, that narrative turned out to be completely false.

“I saw a TON of speculation that the rallies (especially the ETH rallies) were low-leverage and spot-driven, and therefore “more organic” somehow. An important implication of that is that, in the vent of a downturn, there’d be relatively few liquidations”

“This narrative was super wrong, though–and it was possible to know that. How? Well, this narrative has basically been true zero times in the past 3ish years — you can tell from the fact that all the volume is in derivatives or spot where the exchange allows leverage.”

Whether it’s the widespread liquidations that triggered the market crash or other factors, the fact remains that there will always be winners and losers in the super volatile crypto space. With the bitcoin price now hovering around $39k once again, it remains to be seen whether the flagship crypto will still make new all-time highs this season.