The price of Bitcoin (BTC) plummeted by more than 17% in the last 24 hours as the futures market saw mass liquidations across the board.

Liquidations occur when leveraged futures positions fall to a certain threshold. For example, a position using 10x leverage would get liquidated or turn worthless if the price of BTC drops by 5%.

What triggered the mass Bitcoin liquidation fest?

If the Bitcoin futures market is highly overleveraged and overcrowded, a minor price movement can trigger mass liquidations.

According to analysts at Santiment, a data analytics firm, an address was responsible for the second-largest Bitcoin transaction of the year, as Cointelegraph reported.

More than 2,700 BTC were transferred right before the drop, which were bigger than the 2,000 BTC inflow seen before the March 2020 crash when Bitcoin dropped below $4,000. The analysts said:

“As we noted yesterday, there was an 11x exchange inflow spike that initiated #Bitcoin’s price correction from its $58.3k #ATH. Further data combing revealed that an address was responsible for the 2nd largest $BTC transaction of the year, an import of 2,700 tokens to the wallet before a quick sell-off. This same address also made a 2,000 $BTC import last March right as the Black Thursday correction took place. In total, it’s made 73 transactions in its one-year existence, for a total of 91,935 $BTC imported, with all tokens moving away within minutes after arrival.”

Total cryptocurrency futures liquidations. Source: Bybt

It is a possibility that a major sell-off in the spot market triggered the futures market to see intense selling pressure from many long positions getting liquidated.

When Bitcoin initially began to correct on Feb. 22, the futures funding rate of the dominant cryptocurrency was hovering at around 0.15% even as it continued to drop.

This trend showed two things: overleveraged buyers were aggressively buying each dip and the market remained overheated even as the pullback happened.

As a result, new buyers during the short-term downtrend were continuously liquidated, igniting a brutal cycle of cascading liquidations.

However, a pseudonymous trader known as “Byzantine General” described it as a “coordinated shakeout,” and said it is a healthy trend.

Bitcoin price chart with orderbook suite. Source: Byzantine General

If Bitcoin dropped on a so-called “black swan” news or some abnormality, it would be a cause for concern. But, the trader pinpointed the presence of relatively large buy orders to show that buyers are waiting to step in to buy the dip. He said:

“I’m glad I’m seeing signs of this being a coordinated shakeout because that implies that BTC is still bullish and big players just want their bids filled. If it wasn’t premeditated then it would be a lot more scary.”

In the near term, it is critical that Bitcoin defends the $45,000 support area to ensure that the short-term cycle does not enter the “bear zone.” Below it, the probability of a deeper and prolonged correction rapidly increases.