Earlier today, Bitcoin [BTC], the largest cryptocurrency by market cap, spiked in double digits to break through its resistance levels, resulting in a bullish sentiment. To add on, the run even resulted in other cryptocurrencies gaining momentum, thereby resulting in the majority of the market glowing in green.
Interestingly, this bull run was an unexpected event as there was no obvious external catalyst to influence this price surge. Nevertheless, some of influencers speculated the cause to be the April Fools Day news published by Finance Magnets, which reported that the U.S Securities and Exchanges Commission gave a green light for a Bitcoin Exchange Traded Fund [ETF].
This run had an effect not only on investors but also on traders, particularly the short-sellers as it was reported that over $400 million shorts were liquidated on BitMEX, a Bitcoin Mercantile Exchange.
“On 2 April 2019 between 04:44:34 UTC and 05:22:08 UTC, less than 200 positions across XBTU19 and ETHM19 encountered erroneous auto-deleveraging. Users who were affected have been compensated at the best possible price.”
XBTU19 and ETHM19 are both futures contract available on the exchange platform, with each XBT contract worth 1 USD of BTC and ETH contract valued equal to its price in Bitcoin. According to the official blog, these contracts are “ideal for speculation”.
“Auto-Deleveraging occurs when a liquidation remains unfilled in the market. Traders who hold opposing positions will be closed out according to leverage and profit priority.”
The exchange further stated that the “Insurance funds allocated for these contracts was minimal”, adding that the fund was allotted “individually to each contract” based on the liquidations that “contribute to that specific contract”. The blog read,
“In the case of expired contracts, BitMEX has a process in place to roll over the Insurance Fund allocated to these contracts into the next front month contract.”
However, taking into consideration the recent expiry, which was on 29 March 2019, this process was deemed unsuccessful, which led to “front month contract” not receiving its reallocation and the “funds remained unallocated”. This, in turn, resulted in the auto-deleverage of some users “upon large liquidation with these affected contracts”.
The exchange further stated:
“We compensated users based on the maximum potential profit that they would have made over the timeframe of these auto-deleveraging events. We exited these users at the best price of each contract: longs at 5,079.5 on XBTU19 and shorts at 0.03103 on ETHM19. BitMEX did not profit from these auto-deleveraged positions.”
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