The cryptocurrency market witnessed massive liquidations amounting to around $813 million in the past hour. This is considered the largest liquidation event since August 2023 when positions worth $1 billion were wiped out. This caused great concern among investors and caused significant price fluctuations. In this article, we will review the impact of the event on the market and do a simple technical analysis of the current situation.
The impact of liquidations on the cryptocurrency market
1. Increased volatility: When a large liquidation occurs, it increases volatility in the market. When large amounts of currencies are sold quickly, prices drop sharply. This can cause panic among investors, which increases selling and makes prices drop even further.
2. Psychological impact: Large liquidations affect investor sentiment. Fear of losing money makes investors sell their assets quickly, which increases selling pressure and causes prices to fall further.
3. Impact on liquidity: Large liquidations can impact market liquidity. When large amounts of currency are sold quickly, this can cause a lack of liquidity, making it difficult for investors to buy or sell assets at reasonable prices.
Technical analysis
1. Support and Resistance Levels: After a major sell-off, it is important to keep an eye on key support and resistance levels. If prices can stay above a key support level, it could indicate that the market is starting to recover. On the other hand, if prices fall below a support level, it could indicate further declines.
2. Technical indicators: We can use technical indicators such as the Relative Strength Index (RSI) and the MACD to determine whether the market is overbought or oversold. If the indicators indicate that the market is oversold, there may be an opportunity for a rebound.
3. Volume: Volume can be an important indicator of the strength of price action. If volume is high during declines, it may indicate that there is significant selling pressure. On the other hand, if volume is low, it may indicate that the decline may be temporary.