Stocks hit record highs while US$300M in crypto longs get liquidated: What’s next?

While major US stock indexes closed at all-time highs, capping off their best monthly performance since 2020, the digital asset space is currently digesting a sharp, painful correction in leverage. This split personality in the market suggests that while institutional capital remains confident in the earnings power of megacap technology firms, speculative traders in the crypto derivatives market are being forced to reset their risk exposure.

The narrative of the day is not one of universal fear, but rather a selective rotation in which fundamental earnings in stocks are overpowering macroeconomic headwinds, while crowded speculative positions in crypto are being flushed out by technical resistance levels.

The cryptocurrency market experienced a significant deleveraging event over the last 24 hours, characterised by a violent flush of long positions. Data indicates that approximately US$326.71 million in leveraged positions were liquidated, with the overwhelming majority of this pain concentrated on the buy side. Specifically, US$285.87 million of these liquidations came from long positions, compared with just US$40.84 million from short positions. This means that roughly 87.5 per cent of the liquidated value resulted from traders betting on price increases who were forced out of their positions as prices dipped.

The brunt of this activity hit the two largest assets by market capitalisation. Ethereum saw roughly US$308.85 million in liquidations, while Bitcoin saw about US$204.96 million across major venues such as Binance, Hyperliquid, OKX, and Bybit. Some broader estimates place the total liquidation figure closer to US$500 million over a similar window, underscoring the intensity of the sell-off.

This liquidation cascade was not driven by a fundamental collapse in the value of these assets but rather by a technical failure at key resistance levels. Bitcoin has repeatedly failed to sustain a break above the US$77,000-US$80,000 range. This area has become a formidable ceiling where profit-taking by short-term holders meets dense clusters of leveraged long risk around the US$74,000 to US$75,000 levels.

When the price rejected this resistance, market mechanics triggered a cascade of margin calls, forcing traders to sell and driving prices further into the liquidation maps. Ethereum appeared even more technically fragile, trading below key moving averages and failing to hold resistance before rolling over. The result was a classic long squeeze, in which the market punished overly optimistic leverage rather than reflecting a change in the underlying spot demand for the assets.

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In stark contrast to the volatility in digital assets, the traditional stock market rallied to record highs, driven by robust earnings reports that seem to justify lofty valuations. The S&P 500 and Nasdaq Composite posted their best monthly gains in six years, fueled by the continued dominance of megacap technology firms. Alphabet led the charge with a 10 per cent surge after reporting a strong Q1 revenue beat and announcing an aggressive capital expenditure guidance of up to US$190 billion for 2026.

Amazon also contributed significantly to the rally, reporting a 17 per cent revenue increase to US$181.5 billion and seeing its cloud computing division, AWS, accelerate growth to 28 per cent. Apple shares also rose in extended trading following a positive revenue forecast. These results suggest that despite high interest rates, the biggest tech companies are generating enough cash flow to support massive investment cycles.

The enthusiasm for artificial intelligence is not without its sceptics, even within the stock market. The same theme of AI capital expenditure that boosted Alphabet caused sell-offs in other tech giants. Meta Platforms and Microsoft fell 8.6 per cent and 3.9 per cent, respectively, as investors reacted negatively to disappointing user growth and the high memory costs associated with their massive AI spending. NVIDIA also dipped four per cent due to broader scrutiny regarding AI capital expenditures rather than any company-specific bad news.

This indicates a growing bifurcation in the tech sector where investors are beginning to demand proof of return on investment for the billions being poured into AI infrastructure. The market is no longer rewarding spending for the sake of spending. It is rewarding spending that translates into revenue growth, as seen with Amazon and Alphabet.

The macroeconomic backdrop for these divergent market moves remains complex and somewhat contradictory. The Federal Reserve kept interest rates on hold for a third straight meeting as inflation remained above the three per cent mark, a level that is still uncomfortably high relative to the central bank’s targets. Despite this, the US economy grew at a 2.0 per cent rate in Q1 2026, showing resilience that supports the stock market rally.

Geopolitical tensions are adding a layer of volatility that cannot be ignored. Brent crude oil settled near US$110 per barrel after surging past US$114 amid concerns over potential US strikes on Iran and the United Arab Emirates’ announced exit from OPEC. Additionally, currency markets saw wild swings, with the Japanese yen reaching 157.14 per dollar following a suspected intervention by the Ministry of Finance. These factors create an environment where capital is expensive and global stability is fragile, which helps explain why leverage in the crypto market is so vulnerable to sudden shocks.

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Looking ahead, the derivatives market metrics will be the primary indicator of where volatility might spike next. Despite the recent wipeout of long positions, total derivatives open interest remains elevated at approximately US$493.1 billion, having risen roughly two to four per cent over the last day. Perpetuals open interest alone sits near US$489.52 billion.

Crucially, average funding rates have flipped modestly negative, signalling that traders are leaning more defensively after the flush. The key dynamic to watch is whether this open interest continues to fall, indicating deeper, healthier deleveraging, or if it quickly rebuilds near resistance levels. If leverage bleeds down while prices remain stable, it sets the stage for a sustainable move higher. If high leverage and positive funding rates return too quickly, the market risks another sharp squeeze in either direction.

The current market environment suggests a period of digestion and selection. The stock market is proving that earnings power can currently override macroeconomic fears, pushing indexes to new highs even as oil prices surge and the Fed holds rates steady. The crypto market, conversely, is undergoing a necessary technical reset.

The next phase of this cycle will depend on whether the AI spending boom continues to deliver the revenue growth seen by Amazon and Alphabet, or if the costs highlighted by Meta and Microsoft begin to weigh down the broader market. Until then, the divergence between record-high stocks and flushing crypto leverage defines the risk landscape of May 2026.

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