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Bitcoin has recently dropped to around 74,000, and a serious liquidity risk discussion has started in the market. Last night, when $680 million worth of long positions were liquidated, the price moved sharply downward. These kinds of sudden sell-offs clearly demonstrate the answer to the question: what is liquidity risk? When there are not enough buyers, large positions can cause the price to collapse.
Such liquidations are especially common in the futures market. When a few large positions are closed, a chain reaction begins, and small investors get caught in the wave. When asking what liquidity risk is, this is exactly the scenario we mean — insufficient market depth.
Currently, BTC is trading around 74.35K and volatility is high. The key points to watch moving forward are how long this wave of liquidations will continue and where buyers will step in.