Leverage in a Bull Run: Why Liquidations Spike

Liquidations spike in a bull run because rising prices tempt traders into larger, more leveraged long positions, and a crowded market of borrowed bets can unravel in minutes. When prices dip, exchanges force-close leveraged positions, which pushes prices lower and triggers more liquidations — a cascade that can erase days of gains in an hour. The traders most exposed are those who used high leverage because the market "only goes up".

If crypto prices rise strongly at some point in 2026 or 2027, leverage will almost certainly rise with them. This guide explains how leverage and liquidation work, why cascades happen, the warning signs history has shown up to mid-2025, and how to stay exposed without being wiped out.

How Leverage and Liquidation Work

When you trade with leverage, you post margin and borrow the rest. With 5x leverage, $1,000 of margin controls a $5,000 position. A 10% rise earns roughly $500 — a 50% return on margin. A 10% fall loses roughly $500, half your margin.

Every leveraged position has a liquidation price. If the market reaches it, the exchange closes the position to stop losses exceeding the margin. The higher the leverage, the closer that price sits to your entry:

*Simplified; real liquidation levels are closer because of fees, funding and maintenance margin requirements.

Crypto regularly moves several percent in a day, and 10% moves are not unusual. That's why high leverage is closer to gambling than investing. Our guides on leverage in crypto trading and perpetual futures cover the details.

Why Liquidations Spike in Bull Markets

Crowded positioning

In a rally, most leveraged traders are long. Exchanges and social media celebrate big wins, and leverage gets more aggressive. The market becomes one-sided.

The cascade mechanism

1. 1A moderate dip — from profit-taking, a macro headline or a large seller — pushes price to the nearest cluster of liquidation levels.
2. 2Exchanges force-sell those positions into the market.
3. 3The forced selling pushes price down to the next cluster.
4. 4More positions are liquidated, and the cycle repeats until leverage is flushed out.

This is why crypto charts sometimes show long, sharp wicks: a rapid plunge followed by a partial recovery. Read more in liquidation cascades.

Thin liquidity at the wrong moment

Order books can thin out quickly during volatility, so forced selling moves prices further than usual. Weekend and overnight sessions can be especially fragile.

What History Shows Up to Mid-2025

Large liquidation events have appeared throughout crypto's history:

• March 2020: As the pandemic hit markets, bitcoin plunged in a matter of hours and leveraged longs were wiped out across exchanges.
• May 2021: During the 2021 bull run, a sharp market-wide sell-off liquidated large amounts of leveraged positions in a short period, illustrating how fragile a crowded rally can be.
• 2022: The collapses of Terra, several lenders and FTX were made worse by leverage hidden throughout the system — not just traders, but firms borrowing against crypto collateral.

The common thread: leverage builds quietly during good times and is revealed violently when prices turn. Our article on what ended past crypto bull runs discusses this in more depth.

Warning Signs of Excess Leverage

You can watch for these yourself:

• Persistently high positive funding rates on perpetual futures. See funding rates explained.
• Open interest rising faster than price, meaning new leveraged positions are piling in. See open interest explained.
• Extreme greed readings on sentiment tools like the Fear & Greed Index.
• Celebrated leverage: screenshots of 50x and 100x gains spreading on social media.
• Large liquidation clusters visible on analytics dashboards near current prices.

None of these predicts the exact timing of a drop, but together they describe a fragile market.

How to Stay Exposed Without Getting Liquidated

1. 1Skip leverage. Owning spot crypto means a 50% drop hurts but doesn't force-close your position.
2. 2Size positions conservatively. Decide what share of your portfolio crypto should be and stick to it. See position sizing and risk management basics.
3. 3If you trade with leverage anyway, keep it low, set a stop-loss, never add margin to save a losing trade, and only use money you can lose entirely.
4. 4Take profits along the way. Rallies are when to reduce risk, not increase it.
5. 5Avoid unknown leverage platforms. Offshore or unregistered sites advertising extreme leverage and bonuses in social media groups are frequently fraudulent — a pattern covered in our guide to bull run scams.

Scenarios for 2026 and 2027

We don't know what the market will do, but leverage behaves predictably in each environment:

• If a strong rally develops: expect leverage, funding and open interest to climb, and expect sharp liquidation wicks along the way, even in an uptrend.
• If the market is range-bound: leveraged traders get chopped up in both directions as prices bounce between levels.
• If a bear phase develops: long liquidations accelerate declines, and short squeezes cause violent rallies that trap bears.

In every scenario, high leverage increases the odds of a total loss.

Bottom line

Leverage turns a bull run's normal pullbacks into account-ending events, and crowded leveraged positions are exactly why liquidations spike when the market wobbles. If you want exposure to crypto in 2026 or 2027, hold spot, size your position for large drawdowns, watch funding and open interest as warning lights and take profits on the way up rather than doubling down.