Data presented by cryptocurrency trading simulator Crypto Parrot indicates that leverage cryptocurrency traders on Bitfinex and BitMEX exchanges have cumulatively lost $13.47 billion in 2020. A total of $9.26 billion worth of long positions and $4.21 billion worth of short positions have been liquidated over tha last 360 days. BitMEX has liquidated roughly $7.7 billion longs and $3.83 billion shorts. In comparison to Bitfinex with $1.55 billion longs and $374.55 million shorts liquidated.

Back swan event triggers liquidation

The high liquidation value is mainly due to the Bitcoin price movement that has impacted the rest of the crypto market. The asset has witnessed key price movement across the year. The Crypto Parrot research states that:

“The March decline in Bitcoin price was unexpected as it came in the wake of a black swan event. The asset’s value simultaneously plunged alongside stocks, gold, silver, and other legacy markets. However, gold, stocks, and Bitcoin recovered after central banks rolled out pandemic stimulus packages. With Bitcoin, it is premature to expect a similar movement from a black swan event.”

The liquidated amount is significant and traders have attempted to avoid using excessive leverage when trading futures contracts. Therefore, the majority of traders rely on insurance funds.

Leverage trading or margin trading refers to a method of trading assets using third party funds. Margin accounts allow traders to access large sums of capital, allowing them to leverage their positions. Overall, margin trading amplifies trading outcomes so that traders can realize larger profits on successful trades. This strategy carries more significant risk compared to trading on a regular spot exchange.