Liquidation events in cryptography trade: a closer look at Bitcoin Cash (BCH)
The cryptocurrency market has experienced an increase in liquidity and volatility in recent years, and many investors seek to capitalize on price fluctuations. However, this greater commercial activity comes with a new layer of risk: liquidation events. In this article, we will deepen the world of liquidation events in cryptographic trade, specifically focusing on Bitcoin Cash (BCH), one of the most used altcoins.
What are liquidation events?
The liquidation events occur when the price of a cryptocurrency falls below its support level or is very overvalued, which makes it lose value quickly. As a result, investors can decide to close their positions, make losses and cause liquidations from other merchants. This can lead to rapid decrease in prices, since buyers are forced to leave the market.
Bitcoin Cash (Bch) – A case study
In 2017, Bitcoin Cash emerged as a Bitcoin competitor, seeking to increase its own price potential through a more practical and easy to use design. The price of the currency shot, reaching a historical maximum of $ 64,804.71 in July 2017.
However, the cryptocurrency market has experienced significant volatility, and many investors take BCH losses as prices collapsed. As the price fell below its support level of around $ 2,400 in February 2020, the liquidation events began to occur and the price continued to decrease.
Causes of liquidations
Several factors contribute to the probability of liquidations:
- Excessive saturation : When the price of a cryptocurrency is already high, it becomes more difficult for buyers to absorb losses, which leads to greater sale pressure.
- Use of high leverage : Cryptocurrencies with high leverage (for example, 100x or more) can amplify losses when prices decrease rapidly.
- Liquidity problems : Bad liquidity in the market can lead to a lack of purchase and sale activity, increasing the probability of liquidations.
BCH analysis – A case study
Let’s analyze Bitcoin Cash using CoinmarketCap historical prices:
| Date | Price (USD) |
| — | — |
| 01/01/2017 | $ 1.18 |
| 07/07/2017 | $ 64,804.71 |
| 02/20/2020 | $ 2,400.00 |
The price of BCH reached its maximum point in July 2017 and then collapsed, which led to a significant liquidation event. The price remained below its support level for several months before the rebound.
SUPPORT AND RESISTANCE LEVELS
The BCH price table reveals key levels that investors must take into account:
* Support level : $ 2,400 (current price)
* Resistance level : $ 5,000-6,000 (historical maximums)
Conclusion
Liquidation events are a natural consequence of the inherent volatility of the cryptocurrency market and the increase in commercial activity. Bitcoin Cash serves as a case study, highlighting the risks associated with high prices and bad liquidity. As investors continue to browse this complex space, understanding the causes of liquidations is crucial to make informed decisions.
To mitigate risk, merchants can use strategies such as:
* Diversification : Disseminates investments in multiple cryptocurrencies to reduce exposure to any single currency.
* position dimensioning
: Administer positions based on market volatility and the use of leverage.
* Loss arrest orders
: Establish detention orders to limit to limit losses in case of liquidation.
When they are aware of the liquidation events and understand the factors that contribute to them, merchants can make more informed decisions and reduce their exposure to risk.