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cascading liquidations

Cascading liquidations is a term often used in the context of the crypto assets market. It refers to the process in which the sale of large amounts of cryptocurrency assets leads to a sharp decline in their market value. This cascading effect results from the fact that the sale by one investor can trigger a wave of selling by other investors, further reducing the value of the assets.

How do cascading liquidations work?

Example of cascading liquidation in the crypto assets market

One of the most well-known examples of cascading liquidation in the crypto assets market occurred in 2018 when the price of Bitcoin sharply dropped by over 50% within a few days. Many investors, concerned about such a significant decline in value, decided to sell their assets, which only deepened the panic selling in the market.

How to avoid cascading liquidations?

To avoid the negative effects of cascading liquidations, investors should be aware of the risks associated with selling large amounts of cryptocurrency assets in a short period. It is also important to monitor the market and react to changes in a thoughtful and considerate manner.

Remember that the crypto assets market is highly volatile and susceptible to speculation, so investment decisions should be made cautiously and prudently.

The lessons learned from cascading liquidations can also be important for market regulators who are trying to understand the mechanisms that can lead to sharp declines in asset values. Investor education and the development of more stable financial instruments can help reduce the risk associated with cascading liquidations in the crypto assets market.


20 December 2024 | 15:01

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