Key takeaways:
- On Saturday, August 22, XRP experienced a sharp decline, and 283,359 people’s positions were liquidated within 24 hours. The largest single liquidation was $24.96 million for a bitcoin pair.
- The losses were divided almost equally: USD 858 million on long positions and USD 816 million on short positions. The same leverage took down both sides of the market within a day of each other.
- Stock markets rose on the same day and the volatility index fell. This push didn’t come from outside crypto.
Saturday morning, liquidity as thin as every weekend. XRP drops in a few minutes, ether loses 5 percent, solan 11.5, bitcoin barely 2.5. When the dust settled, XRP was back around $1.50, not far from where it started. However, the positions of 283,359 people were not returned because the exchange closed them, not the owner.
This is the whole difference between looking at the chart and holding a leveraged position. The chart is back. Deposits no.
How much XRP really dropped
Sources vary – some say a decline of 37 percent, or approximately USD 0.60, and approximately USD 500 million of longs wiped out in a few minutes. On the same day, Coinpedia writes about a decline from USD 1.70 to USD 1.51, or 12 percent.
Both numbers can be true at the same time. Thirty-seven percent was a wick on one exchange where the order book cleared in seconds. Twelve percent is the price movement averaged from many places. However, it is certain that whoever had a deposit at that moment got the worst possible version.
Why there were almost as many shorts as longs
The most interesting number of this weekend is not the number from Saturday at all. Longs lost USD 858 million, shorts USD 816 million. Almost a draw.
Liquidation is the forced closing of a position by the exchange when the deposit no longer covers the loss. He doesn’t ask for your opinion and doesn’t wait for the course to return. If you play for someone else’s money, the stock exchange decides when you stop playing.
This symmetry is more important than the drop in XRP itself. Within a week, the same mechanics punished first one extreme, then the other. Only sparing those without leveraged positions.
Did bonds crash the market?
But on Saturday, this background doesn’t explain anything. American indices closed in positive territory, the S&P 500 higher by 0.43 percent, the Dow by 0.98. The VIX volatility index fell 5.5 percent and gold gained 2.39 percent. If the debt market was pushing capital out of risk, stocks would fly along with altcoins. They weren’t flying.
This leaves a more boring and structural explanation: too much leverage with the thinnest weekend liquidity of the week, and this after five days in which everyone was oriented in the same direction. Analysts quoted by industry websites agree on the lack of a macro catalyst, but none of them have a hard measurement for it. I don’t have one either, so I’m giving this as the best available explanation rather than an established cause.
What does this mean for you
If you hold crypto without leverage, Saturday was a media event for you. The price came back within a few hours and the portfolio saw the usual correction.
If you use leverage, there are four conclusions and none of them are groundbreaking. First of all, the weekend is the worst time to take a short position because the order book is then the shallowest during the week. Secondly, the liquidation level is based on the price on your exchange, not on the average price that you will see later in the summaries. Thirdly, entering after a week of increases of 60 percent is statistically the worst moment, because you enter where everyone is already standing. Fourth, a stop-loss set at a round number lies exactly where the SLs of the rest of the market lie.
