The crypto market is affected by a $16 billion liquidation shock.

Historical Liquidation in the Crypto Market

Last Friday night, the crypto market experienced a significant crash. This event led to the liquidation of leveraged buying positions worth a total of 16 billion dollars in major cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), XRP, and Solana (SOL). While the market saw double-digit percentage declines, many altcoins experienced a loss of value ranging from 20% to 40%.

The bull side (investors making purchases) is curious whether the recovery will be swift. However, the process that follows such a crash typically signals a gradual recovery phase. The founder and chief investment officer of Split Capital, Zaheer Ebtikar, stated on X platform, "When the market turns like this, there’s usually an extraordinary roadmap to follow afterward."

Market Processes

The first stage occurs as liquidation orders flow into exchange platforms, leading the market into a “bleeding” period. During this stage, prices continue to fall. Many altcoins, including XRP and Dogecoin, fell to their lowest levels in months. During liquidation movements, market makers step back temporarily to manage risk by providing liquidity and ensuring regular trading.

The second stage involves stabilizing the data in the market. During the market crash, exchange platforms and technical systems providing real-time information often experience disruptions due to high volatility. However, once the data flow stabilizes, market makers and large investors begin to absorb significant sell orders to help balance the market.

Market Balancing and Recovery

In the third stage, sellers and market makers start to close the long positions they initially acquired while absorbing liquidation orders. This is done to realize profits for a potential rebound. As the market returns to balance, some assets may become more attractive than others.

Finally, the market finds a bottom, and investors begin to rebuild their confidence shaken by the crash. However, if the US-China trade tensions continue, the uncertainty regarding when this process will conclude may persist.