What is the $294.7 million liquidation event and why is it important for crypto traders

On March 21, 2025, the global cryptocurrency derivatives market experienced a massive liquidation wave. This phenomenon not only affected individual traders but also revealed structural risk factors within the margin trading system. To understand this event, we need to know what is liquidation and why it triggers a chain reaction of domino effects in the market.

What is liquidation: Definition and mechanism

Liquidation (liquidation) in derivatives trading is the process of automatically closing a trader’s position when the collateral margin falls below the minimum due to unfavorable price movements. Simply put, what is liquidation — it is the exchange forcing you to exit your position to prevent larger losses.

In the event on 3/21/2025, total liquidation volume reached $294.7 million within 24 hours. This figure reflects the depth of highly leveraged positions that the market had to handle as sentiment shifted.

Liquidation data: Who suffered the heaviest losses?

When large-scale liquidation occurs, not all trading groups are affected equally:

Bitcoin (BTC) is the focal point of this event:

• Total perpetual BTC liquidations: $186 million
• Short positions liquidated account for 91.26% (≈ $169.7 million)
• Current price: $96,88K (+2.05% in 24h)

This shows that traders betting on Bitcoin’s price decline were “trapped” as the price surged.

Ethereum (ETH) shows a similar picture:

• Total perpetual ETH liquidations: $78.27 million
• Short liquidations: 74.91% (≈ $58.6 million)
• Current price: $3.37K (+2.26% in 24h)

XRP also faced pressure:

• Total liquidations: $30.44 million
• Short positions: 82.02% (≈ $24.97 million)
• Current price: $2.13 (+0.75% in 24h)

This data pattern clearly indicates: those who shorted the leading assets have borne nearly all the losses.

Short Squeeze: The cycle of buying pressure

To understand why liquidation occurred on such a scale, we need to explore the short squeeze (space squeeze) mechanism:

When an asset’s price rises sharply, short sellers (those who borrowed and sold expecting the price to fall) face increasing losses. They have two options:

1. Add more margin to maintain their position
2. Get liquidated by the exchange

When many short positions are liquidated simultaneously, these forced buy orders push the price even higher, creating additional pressure on remaining short positions that haven’t been liquidated yet. This is the short squeeze cycle.

Three amplifying factors of the liquidation effect

1. High leverage beyond reason

Perpetual contracts allow leverage from 10x up to 125x or more. Each 1% price movement can be magnified into a 10% or 125% loss depending on leverage. With 100x leverage, a mere 1% price adjustment can wipe out the entire margin.

2. Funding Rates (Funding Rates)

Prior to the event, positive funding rates persisted, meaning those holding short positions had to pay those holding long positions. This cost accumulated rapidly, adding psychological and financial pressure.

3. Sudden market sentiment shifts

Crypto markets operate 24/7 and can reverse direction very quickly. Positive news or large buy orders can turn market sentiment from bearish to bullish within minutes.

Historical comparison: Where does this event stand?

While $294.7 million is a significant figure, it is not the largest in history:

• Luna/Terra collapse (May 2022): Liquidations exceeded $1 billion
• FTX crisis (November 2022): Domino liquidations reaching billions of dollars
• Event on 3/21/2025: Moderate in comparison

However, what is notable is that this event occurred without major macroeconomic triggers or exchange failures. It is purely driven by natural market dynamics and excessive leverage positions.

Broad impact: From individuals to the system

Impact on traders

What does liquidation mean from a trader’s perspective? It is a “shock” — an uncontrollable jolt. High leverage users can lose their entire margin. A liquidated position not only forfeits potential profits but can also result in total capital loss.

Infrastructure check of exchanges

The smooth handling of $294.7 million in liquidations without system failures or negative account balances indicates that derivatives exchanges’ technological infrastructure has matured compared to previous years.

Behavioral change in trading

Events like this serve as a clear reminder of the risks of high leverage in a 24/7 market. The trading community is paying more attention to basic risk management measures.

Risk management strategies for liquidation avoidance

To prevent becoming a victim of a similar liquidation event:

1. Limit leverage: Use lower leverage (5x or less) instead of 100x+
2. Set stop-loss orders: Automatically exit positions at predetermined prices
3. Monitor margin ratio: If approaching liquidation threshold, reduce position size
4. Avoid concentrated bets: Do not bet everything on a single direction
5. Manage expectations: High leverage profits come quickly, but losses do too

Conclusion

The $294.7 million liquidation event on March 21, 2025, demonstrates that the cryptocurrency derivatives market offers both opportunities and risks. The question “what is liquidation” is not just a theoretical issue but a practical hazard that must be understood.

Data shows that those who do not manage risk carefully will suffer direct losses. Conversely, traders who understand the liquidation mechanism, use reasonable leverage, and follow risk management rules will have a better chance of long-term survival in this market.