Bitcoin [BTC] experienced a wave of forced liquidations in the Asia trading session on Friday, December 6th. Such liquidation events happen when a significant concentration of liquidation levels encounters the price movement.
In the past few days, there have been two instances of liquidation cascades as analyzed by CryptoCrypto. The breach of the $100k liquidity cluster led to a spike in price to $104k, followed by a drop to $94k which cleared out overleveraged bulls, setting the stage for a more measured Bitcoin trajectory.
Spotting Trading Opportunities in Liquidation Cascades
According to data from Coinglass, the last 24 hours witnessed roughly $883 million in liquidations across the cryptocurrency landscape, with Bitcoin accounting for nearly $493 million, out of which $418 million were shorts.
Following a 12.59% plunge in BTC’s price on Binance (slightly varying on other platforms) – from $103.5k to $90.5k in seven hours – it’s important to note that despite such fluctuations, the overall bullish trend of Bitcoin often involves substantial pullbacks.
During the 2020-21 bull run, noticeable price retracements of 20% or more from the peak were frequent. While the recent dip wasn’t as drastic and was swiftly recovering, Bitcoin was valued at $98k at the time of reporting.
This period presented an opportune moment to assess the potential profits that traders could have garnered if they had seized the recent price declines.
What Would Have Been Your Return if You Bought Bitcoin’s Recent Dips?
Between October 29th and now, Bitcoin has undergone three significant price drops, with the latest being the most substantial. These price plunges varied slightly across different exchanges, with Bitstamp recording an 11.15% dip.
Moreover, neither of the initial two drops led to liquidation cascades, events typically triggered in hyper-excitable market conditions, such as during a bullish phase with record-breaking Open Interest levels.
A theoretical scenario explores the potential profits from purchasing $1,000 worth of BTC at the lowest point of each of the three recent dips. When Bitcoin touches $100k once more, the total investment of $3,000 during these dips would have been valued around $3,685, with notable gains notably ensuing post the U.S. presidential election results boost.
A 68.5% return in slightly over a month sounds appealing for traders who adhere to buying the dip strategy, although identifying the precise bottom remains a challenging task.
Nevertheless, historical charts indicate that during a bullish trend, following the prevailing market direction is advantageous, and confident investors should consider dip purchases in the forthcoming months.