Thread by @AlamedaTrabucco

What happened on Thanksgiving 2020?

(Market color edition -- a thread about why liquidity matters)

I'd describe the past few week as *dense*. A ton has happened -- the market's paradigm has shifted seemingly a dozen times, and the sorts of moves we've seen would be seen as wild if they happened in a *year* in other markets.

Often, periods like this feel like they're building to something -- it's intangible, but there's often a ton of volatility and then BOOM, something giant happens. The vol doesn't always subside (and once Thanksgiving is over I expect more action). But right now? Calmer.

And BOOM is exactly how I'd describe what just happened. On some level, a lot of the edge in trading for the past few weeks was in figuring out how the markets were going to react today. How possible was that?

The lead-up can help us answer that:

This started as a rally driven by U.S. investors. They and the liquidations they triggered drove things up, but all the while, aggressive, levered-long buying was contributing -- you could tell because of the liquidation-driven drawdowns from local peaks.

https://twitter.com/AlamedaTrabucco/status/1329154541858656256?s=20

You could also watch the OIs for tons of major contracts -- for BTC, yes, but also -- critically in trying to understand the alt mania that would follow -- for many major alts. Those OIs were *skyrocketing* once you accounted for all the liquidations.

https://twitter.com/AlamedaTrabucco/status/1329891607735275520?s=20

And alt mania was *crazy*. Major alts spent the weekend playing catch-up to BTC which had mostly rallied on its own during the U.S. week. This might have started as spec that some alts would fit their investment profile, but liquidations made it extreme.

https://twitter.com/AlamedaTrabucco/status/1330145534997393408?s=20

And drawdowns at the end of the weekend triggered liquidations for all -- another sign that high leverage + low liquidity were a lot of what caused the alts (and BTC) to get so high in the first place.

https://twitter.com/AlamedaTrabucco/status/1330559616745238530?s=20

The beginning of the next week saw maybe a similar pattern -- more buying into the U.S. day (and in the U.S. morning), but it tapered off and everything sold off. As usual, this started out organic and then liquidations took over.

https://twitter.com/AlamedaTrabucco/status/1330897291595550720?s=20

The next day? Same thing, but shifted earlier! People were *expecting* BTC buyers, but the U.S. did not deliver, and there was a *big* sell-off when the world realized. Same for alts, basically. E.g. XRP had a similar but exacerbated graph.

https://twitter.com/AlamedaTrabucco/status/1331613964279582727?s=20

What patterns do we see? Everything starts organic: U.S. people buy BTC, BTC goes up. Major alts that seem "blue chip" lag, those same alts go up. U.S. people stop buying, everything sells off.

Liquidations a) exacerbate everything and b) sort of undo their own exacerbations, because once people e.g. sell into huge rallies caused by buying liquidations, it triggers selling liquidations. This is especially true when there's low liqudiity (for alts, on weekends).

And so, today! The status was: crypto was still up a TON on net, U.S. buyers have gotten less interested in buying, and people have started figuring that out. Alts have picked their beta to BTC back up, and are basically following it, often with >1 beta. Also, it's Thanksgiving!

Day 1: Asia bought, U.S. bought a bit and then stopped.
Day 2: Asia bought, the U.S. didn't, everything sold quickly off.
Day 3? I'd guess even Asia isn't gonna buy, and that's just what happened -- with markets still up and no "reason why" they sold off 5% steadily, until ...

18200 is a level we've not seen in a bit now, and recall that, since the last time we did, there's been quite a bit of levered-long buying. A 5% move is gonna liquidate a lot of that if it's levered up a ton (it is), hence the crash is EXACTLY what we should expect!

(BTW, even if you don't guess the direction a priori, there was a TON of OI opened in both directions -- once things started going down, it was SUPER likely they'd keep going down, especially once we got to that local min price.)

And altcoins? Same move except, typically, WAY more intense. As we expect! Liquidity is lower and OIs are up a lot more vs. typical liquidity, so liquidations are just always gonna impact them more here. XRP was again super extreme -- that's a 20% crash!

As we've seen, the markets *do* tend to rebound right when liquidations end (but be careful! being wrong about them being over is pretty costly) -- same was true for alts. Everything was stable for a bit, but it started trending downward ... til a new local min near 17200.

I'm sure you know where this is going, but that triggered yet more liquidations. Overall, for the rest of the day, that's what's happened -- things have gone up and down, more high-levered positions get opened, more people get liquidated.

Looking at the graphs, it REALLY stands out how momentum-driven these moves have been -- prices trend up for %s, down for %s, etc. Liquidations drive that, of course, but so is another really weird effect -- Thanksgiving.

Honestly, lots of people who typically provide liquidity have bailed. That caused the downturn -- U.S. buyers out -- but it also exacerbated it, because liquidation engines don't take the day off, and a market order into an empty book is ... impactful.

And that's pretty much where we are. Liquidity is still low and I'm still expecting liquidations and momentum to dominate -- which direction is kinda anyone's guess, as plenty of contracts are open in both.

Really wild day, all told -- and it's not exactly over, though it has gotten calmer. All told? Most exciting Thanksgiving I've ever had.

(Thread about Alameda's Thanksgiving day festivities to come!)