Disclaimer: The opinions expressed by our writers are their own and do not represent the views of U.Today. The financial and market information provided on U.Today is intended for informational purposes only. U.Today is not liable for any financial losses incurred while trading cryptocurrencies. Conduct your own research by contacting financial experts before making any investment decisions. We believe that all content is accurate as of the date of publication, but certain offers mentioned may no longer be available.
According to the most recent data provided by Glassnode, the long dominance in liquidations on the crypto market has reached 69%, indicating that Bitcoin traders have tried to "catch knives" multiple times during the most recent correction on the crypto market.
What does catching a knife mean?
The candle's shadow, or a tail on the chart, is usually called a knife, which identifies a short-term dip that becomes part of a candle. Traders catch that "knife" and maximize their profits.
#Bitcoin long liquidation dominance has hit 69%, the highest level since the May 2021 deleveraging event.
— glassnode (@glassnode) January 10, 2022
This means that the majority of liquidations in futures markets over recent weeks were long traders attempting to catch the knife.
Live Chart: https://t.co/FM03prCgrV pic.twitter.com/5I6uyEutx8
During correction periods, some traders try to buy or long the asset at the best time possible—right before the short-term reversal to end up with the highest profit possible. The main drawback of such a strategy is elevated risks tied to the idea of betting against the market.
How successful knife catchers act during a correction
As Glassnode data suggests, traders do not seem to end up successful after following the strategy. The majority of liquidated positions on the market today are long or buy orders. Bitcoin is only now showing its first signs of recovery after going through a negative trading streak in the last six days.
Previously, most exchanges reported a large liquidation volume of more than $800 million in 24 hours amid the start of the correction. The large selling pressure on the market appeared after the shutdown of most mining farms in Kazakhstan and the appearance of the first signs of monetary policy hardening from the Fed.
At press time, Bitcoin is trading at $41,875, while the liquidation rate stays at $92 million in the last 24 hours, including BTC's $2.7 million.
Vladislav Sopov
Dan Burgin