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Want to Protect Your Crypto Profits? Essential Strategies from Past Market Crashes.
In the world of cryptocurrency, prices can go up and down very quickly. Sometimes, these sudden drops cause what is called a “liquidation event,” where traders lose a lot of money all at once. This happens when traders borrow money to make bigger bets, a practice known as trading with leverage.
Think of it like this: you put down a small deposit to borrow a larger amount of money for a trade. If the price moves in your favor, your profits get a big boost. However, if the price moves against you, your losses also get much bigger. When your loss gets too big and eats up your deposit, the exchange automatically sells your crypto to pay back the loan. This is a liquidation. When thousands of traders are liquidated at the same time, it can cause prices to crash even further.
Major Crypto Liquidation Events
History shows several days when market shocks led to billions of dollars in liquidations. These events teach us how news, regulations, and investor sentiment can dramatically affect prices.
May 19, 2021 ($9.01 Billion)
A perfect storm of bad news hit the market. Tesla announced it would no longer accept Bitcoin
for payments due to environmental concerns. At the same time, China announced stricter rules on crypto services. This double-whammy caused Bitcoin’s price to fall 30% and led to over $9 billion in liquidations.
April 18, 2021 ($9.94 Billion)
Rumors about a U.S. government crackdown on money laundering, combined with power outages in a major crypto-mining region in China, spooked investors. Bitcoin’s price dropped 15%, and nearly $10 billion in leveraged positions were wiped out.
September 7, 2021 ($3.65 Billion)
This event happened on the same day El Salvador officially made Bitcoin a legal currency. Technical problems with the government’s official crypto wallet, Chivo, created confusion and doubt. The uncertainty caused Bitcoin’s price to drop 10%, leading to $3.65 billion in liquidations.
February 23, 2021 ($3.15 Billion)
Comments from important officials can sway the market. U.S. Treasury Secretary Janet Yellen described Bitcoin as “highly speculative” and “inefficient.” Her words triggered a sell-off, with Bitcoin’s price falling 15% and causing $3.15 billion in liquidations.
Smart Steps to Protect Your Investments
Watching billions disappear from the market is a powerful reminder to be careful. Big price swings can happen without warning. Here are some simple lessons to keep in mind:
- Be Cautious with Borrowed Money: Using leverage is risky. Unless you are an experienced trader, it is wise to avoid high leverage.
- Only Invest What You Can Lose: The crypto market is unpredictable. Never trade with money that you cannot afford to lose completely.
- Stay Informed: Pay attention to news about regulations, technology, and global events, as they can all impact crypto prices.