Over $2.vii billion worth of futures contracts were liquidated in the last 24 hours, based on information from Bybt. This caused the toll of Bitcoin (BTC) to see a big drop in a brusk time frame every bit it plunged from over $41,000 to under $32,600.

BTC/USDT 4-hour price chart (Binance). Source: TradingView.com

Why would mass liquidations crusade Bitcoin to drop?

In the futures market, liquidations of positions occur considering traders are borrowing additional uppercase to trade with larger positions.

For example, exchanges in the Bitcoin futures market typically offering up to 100-times leverage. This allows traders to borrow 100 times their initial majuscule to trade BTC.

The downside of leverage is that when the toll of Bitcoin sees a minor drop, information technology can cause a position to exist liquidated, or be worthless.

For case, allow'southward say a trader uses 10-times leverage and borrows 10 times their upper-case letter to purchase Bitcoin at $twoscore,000. If the price drops x% to $36,000, the position would be liquidated.

When a long position is liquidated, the position is then sold to the market. Hence, if the bulk of the marketplace is longing Bitcoin and long contracts brainstorm to be liquidated, information technology creates massive selling pressure.

On January. eleven, the Bitcoin market saw a massive long squeeze triggered by big sell orders on Coinbase. As whales or loftier-net-worth investors sold, information technology caused many long contracts to be liquidated in a affair of hours.

The consecutive liquidations led to a domino effect, resulting in a steep sell-off and a sixteen% correction.

But one optimistic sign is that the correction came to an stop at around $32,700, which Whalemap analysts described equally a whale cluster back up surface area.

A whale cluster forms when whales buy Bitcoin at a certain level and do not move it. This level ofttimes turns into a support area because whales are likely to double down on their entries if a major dip occurs and the cost of BTC drops dorsum to that level.

Bitcoin whale clusters predicted massive drop. Source: Whalemap

What happens next?

Although Bitcoin saw a large drop, the overall market sentiment around BTC remains generally optimistic.

As Cointelegraph reported, Elias Simos, a protocol specialist at Bison Trails, pinpointed that the number of whales actually increased later on Bitcoin saw a big price drib.

The trend shows that whales were really accumulating as the cascade of liquidations occurred, which is positive. Simos wrote:

"Addresses with more than than 1k $BTC go along growing at the expense of all others–fifty-fifty as this most recent downturn is taking result. While you were selling, whales were gobbling upward your Bitcoin."

Analysts at Glassnode, an on-concatenation analytics business firm, explained that the fundamentals of Bitcoin remain intact despite the drib. They emphasized that the Bitcoin network'due south hash rate and mining difficulty are still at all-time highs. The analysts noted:

"While $BTC dipped in value today, on-chain fundamentals remain strong, pointing to a good for you network. #Bitcoin mining difficulty and hash rate are at ATHs."

While this current xv% to 25% drop is the biggest pullback for this bull wheel to date, it'south worth noting that numerous 30% corrections occurred during Bitcoin's 2017 bull wheel.

As Cointelegraph reported before, the electric current BTC price pullback coincides with a potential bottom formation of the dollar strength alphabetize.