Sharp swings in cryptocurrency prices are driving a string of forced liquidations among retail investors who borrowed coins to trade.
Bithumb recorded 1,201 forced liquidations in its coin lending service over the past 30 days, worth about 13.68 billion won ($9.4 million), according to financial industry sources on the 11th. Tether (USDT), a dollar-pegged stablecoin, accounted for about 11.66 billion won, or 85% of the total.
Forced repayments have also been rising at Upbit since the second half of the year. Monthly forced liquidations climbed steadily from 32 in July to 74 in August, 81 in September and 119 in October. The value rose over the same period from about 400 million won to 1.57 billion won. Compared with July, the number of forced liquidations in October was nearly four times higher.
Coin lending services let users pledge the cryptocurrency they hold as collateral to borrow other digital assets for trading. The mechanism works like short selling. It allows investors to build larger positions with less capital, but losses mount if prices move against them. If the value of the collateral falls or the price of the borrowed coin rises, pushing the debt-to-collateral ratio above a set threshold, the exchange sells the collateral to recover the loan.
Industry officials say the risk of forced liquidation is growing as the crypto market swings on domestic and global factors. Bitcoin recovered above $80,000 after the U.S. midterm elections on the 3rd, but slipped back below $75,000 as selling spread across U.S. technology stocks.
The token then fell into the $73,000 range on the 11th after U.S. inflation came in above market expectations, raising concerns about further rate increases. Bitcoin has dropped about 12% over the past month. "Short selling is fundamentally a technique that requires a substantial level of knowledge and trading expertise," one financial industry official said. "Investors need to be careful because losses can grow rapidly."
Original reporting by Kim Jung-woo for Seoul Economic Daily.
AI-translated from Korean. Quotes from foreign sources are based on Korean-language reports and may not reflect exact original wording.
Watch · Seoul Economic Daily
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