Crypto Market Sees $2.56 Billion in Liquidations on February 1, 2026

The cryptocurrency derivatives market experienced over $2.56 billion in liquidations on February 1, 2026, the highest single-day total since the October 2025 crash. This marked a sharp spike in forced closures of leveraged positions, with Ethereum and Bitcoin accounting for the majority of the losses. The event occurred amid heightened volatility and geopolitical tensions between the U.S. and Iran, which exacerbated selling pressure.

Liquidation data from platforms like Binance, Bybit, and Hyperliquid showed that long positions bore the brunt of the losses, with $2.42 billion wiped out compared to $163 million in short liquidations. Ethereum alone saw $1.15 billion in liquidations, while Bitcoin faced $788 million in losses. These figures indicate significant bearish positioning and forced deleveraging among traders.

The market response to these liquidations was mixed. While some viewed the event as a sign of underlying structural stress, others saw it as a cleansing process that could lead to a more stable market environment. The total crypto market capitalization fell by 6% during the 24-hour period, with Bitcoin and Ethereum hitting two-month lows.

Why Did This Happen?

Ethereum's funding rates dropped to levels last seen during the FTX collapse in November 2022, signaling extreme bearish sentiment among derivatives traders. The negative funding rates reflect the imbalance between perpetual and spot prices, with derivatives traders paying longs to take the opposite side of the trade. This imbalance typically arises during periods of acute market stress and systemic fear.

Geopolitical tensions between the U.S. and Iran played a significant role in triggering the selloff, contributing to a broader risk-off sentiment across financial markets. In addition, macroeconomic factors, such as tight liquidity conditions and a neutral to hawkish stance from the Federal Reserve, reduced demand for speculative assets.

How Did Markets React?

The sharp drop in prices led to cascading liquidations, especially on exchanges with lower liquidity. Hyperliquid recorded the highest liquidation volumes, with nearly $1.1 billion wiped out in a single day. Binance and Bybit also reported significant losses, highlighting the widespread nature of the deleveraging event.

Retail and institutional traders were affected across the board. The number of liquidated traders reached 434,945 in 24 hours, with most losses concentrated in leveraged long positions. This highlights the vulnerability of overleveraged positions during sharp price moves.

What Are Analysts Watching Next?

Market analysts are monitoring key technical levels for Bitcoin and Ethereum, with Bitcoin needing to hold above $67,200 to avoid further declines. Ethereum faces critical support near $3,380, and any breakdown could trigger additional selling pressure.

Regulatory developments remain a key focus. Stricter leverage limits for retail traders in the European Union and proposed centralized clearing mechanisms in the U.S. are expected to influence market behavior. Additionally, exchanges are enhancing risk management protocols to mitigate future volatility events.

Institutional participation in derivatives markets continues to grow, with more hedge funds and family offices allocating to structured crypto products. This increased institutional presence is expected to provide greater depth and liquidity during volatile periods, though the recent liquidation event suggests further maturation is needed.

Risk management strategies for traders emphasize conservative position sizing and diversification across uncorrelated assets. Monitoring funding rates and open interest changes is also crucial for anticipating potential liquidation events. Institutional-grade tools now provide real-time data to help traders adjust their exposure dynamically.

The recent liquidation event underscores the evolving nature of cryptocurrency derivatives markets. While volatility remains a key characteristic, structural improvements in risk management and market infrastructure suggest the sector is becoming more resilient to large-scale liquidation events. Continued monitoring of leverage ratios, funding rates, and regulatory developments will remain essential for navigating the market successfully.