The largest liquidation in history went down yesterday when $460 million worth of a bitcoin long position was called, but the problem is $420 million worth was not filled.
According to a report by an unnamed co-admin of a trading platform, Whalepool, the liquidation of some 950 bitcoins was such a big order that for OKEx to sell them on the market, it would effectively crash the market.
“This liquidation did not get filled in the market, and theres now a $420 Million overhang in this weekly settlement period that impacts all three maturities on BTCUSD Futures,” he says.
We tried to reach out to OKEx to see what they plan to do, with Jason Lau, VP of Business Development at OK Group, telling Trustnodes: “we are aware and will make an announcement soon.”
He further confirmed that an almost half a billion dollars liquidation order has not been filled. We asked if everyone else has to pay for it. Lau says:
“If at settlement there is a deficit that that insurance fund doesn’t cover, then yes. This system has been in place since 2014 and is working as intended.”
The insurance fund has only around 10 bitcoins. The rest will now seemingly have to be covered by everyone else under socialized losses. That is, a bailout.
The way that works is that anyone who had a long or short position during this settlement period gives some 50% of their profits, so whipping out this $420 million position and maintaining OKEx’s solvency.
The problem is of course traders are now very angry for the loss is so considerable. A likewise 50% loss has not been seen since 2015, with questions raised as to why was this individual able to build such a huge position.
Questions OKEx may answer soon, where just this May a $120 million bitcoin short was called. That, however, was filled as far as we are aware, but this time the market was moving too fast, with no one wanting to buy that 950 bitcoins.
“The open interest of the Quarterly contract is $800 Million now, and more than half of this amount in Short positions has PNL [profit] that goes uncovered due to this bankrupt #1 Contract Holder trader,” the Whalepool co-admin says before adding:
“While it is not clear how much profit or loss has been exchanged in this period thus far (plenty of people could open, close positions and earn profit which goes unsettled until Friday), this massive Loss could end up causing the largest clawback in history.”
The way futures work is that you’re basically borrowing money to amplify your bets with some collateral in bitcoin put down for the position.
So if you have 1 bitcoin, at a 20 leverage you’d be trading with 20 bitcoin. That means the price has to move very little for you to lose your one bitcoin and thus get called. At that point, the exchange automatically closes your position and sells your bitcoin in a long position.
Someone has to buy that sell, however, and as far as this 950 bitcoins position is concerned, the market was moving too fast, so it did not get filled. That means everyone else has now to collectively pay for this unliquidated bet, which so happens to be half of all open interest of quarterly contracts.
Article updated with comments from OKEx representative.