Recent data indicates that the Bitcoin futures market has experienced significant deleveraging. This reset could have implications for BTC, reflecting historical trends.
Recent Crash in Bitcoin Open Interest
An analyst highlighted in a CryptoQuant Quicktake post that the BTC Open Interest has recently undergone a retest. The “Open Interest” serves as an indicator that tracks the total number of futures positions related to Bitcoin that remain open across all derivatives exchanges.
An increase in this metric suggests that investors are opening more positions in the market. Typically, this leads to a rise in total leverage within the sector, potentially resulting in increased volatility for the asset.
Conversely, a decline in this indicator signifies that futures users are either closing their positions or being forcibly liquidated by their trading platforms. As leverage decreases in such scenarios, the market tends to behave in a more stable manner.
Below is the chart provided by the analyst, illustrating the trend in Bitcoin Open Interest alongside its 90-day percentage change over the past few years:
The above graph indicates that the Bitcoin Open Interest surged to an all-time high (ATH) of $33.6 billion in January. Notably, this peak in the indicator coincided with the ATH in Bitcoin’s price.
As previously mentioned, an increase in Open Interest can contribute to volatility in the cryptocurrency market. This is primarily because an overleveraged market heightens the risk of a mass liquidation event, commonly referred to as a squeeze.
In such instances, a swift price movement triggers numerous simultaneous liquidations, which can amplify the price movement itself, thereby prolonging it. This situation can lead to a domino effect of further liquidations. The volatility stemming from an increase in Open Interest can theoretically affect Bitcoin’s price in either direction. During the last bull rally, for instance, the increase in Open Interest was met with bullish momentum.
However, the chart shows that the indicator reached a pivotal point around the time of the aforementioned peak. Following the ATH, bearish momentum took control, leading to a situation where bulls faced liquidation. The substantial long squeezes induced by downward price movements contributed to the steep price decline.
Currently, the Open Interest stands at $23.1 billion, with a notable 90-day change of -14%. The quant has highlighted past deleveraging events in the chart where the metric dropped sharply.
“Historical trends indicate that previous deleveraging events have often presented good opportunities for the short to medium term,” the analyst observes. It remains to be seen if this cooling in the futures market will be sufficient for a Bitcoin rebound.
Current BTC Price
As of the latest update, Bitcoin is trading around $83,500, reflecting a 1% increase in the past 24 hours.
