What will occur if Bitcoin and Ethereum reach important liquidation thresholds

The volatile nature of bitcoin and ethereum in Q4 has resulted in billions of dollars in forced liquidations across crypto markets. Since October, bitcoin has seen its value fluctuate from above $126,000 to as low as $80,500, while ethereum reached a high of nearly $4,900 in August before dropping to $2,800 in recent months.

Liquidations are triggered when a trading platform closes a leveraged position due to insufficient funds in the trader’s account to cover the losses. While a handful of liquidated positions may not have a significant impact, mass liquidations at similar price levels can lead to substantial market movement.

According to Coinglass, the cascading effect of market buy and sell orders triggered by liquidations can result in rapid price fluctuations, creating large liquidation clusters that can impact spot markets. This underscores the importance of monitoring key liquidation levels to anticipate potential price movements.

One platform that provides transparent data on liquidation levels is the crypto perpetuals protocol Hyperliquid. For bitcoin, notable liquidation thresholds include long positions being liquidated at $63,875, $73,557, and $78,617, while short positions face liquidation at levels such as $94,354, $95,123, $98,356, $112,005, and $114,295.

Sean Dawson, a core contributor at Derive, highlighted the significance of downside protection through puts on the $80/$75K strikes for the 5 DEC expiry, indicating that traders are buying insurance against a potential break in support levels.

On the other hand, upside liquidation levels for bitcoin include short positions being liquidated at $94,354, $95,123, $98,356, $112,005, and $114,295. Dawson noted a spike in calls at the $100/$110K strikes, suggesting that traders are optimistic about bitcoin’s potential for surpassing six figures.

For ethereum, key liquidation levels for long positions are around the $2,300-$2,400 range, with a drop to $2,327 potentially resulting in the liquidation of 15,000 ethereum tokens’ worth of positions. Regarding short positions, the key ceiling is under $4,000, with a move to $3,976 liquidating 39,360 ethereum tokens.

Nicolai Søndergaard from Nansen emphasized the significance of consensus levels around $2.4K-$2.5K for ethereum as potential bottoms, noting that these levels coincide with areas where puts are concentrated.

Overall, monitoring liquidation levels is crucial not only for leveraged traders but also for non-leveraged investors in spot markets. By understanding the impact of mass liquidations on price movements, investors can make informed decisions to navigate the volatile crypto landscape.