Bitcoin Resets With 14% Deleveraging—Here’s What Past Events Led To
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Data shows that a large-scale deleveraging incident has occurred in the Bitcoin futures market recently. This is what a reset of past trends means for BTC.
Bitcoin open interest has crashed recently
As analysts pointed out in Encryption QuickTake postalBTC Open Interest has recently been retested. this”Open interest” refers to an indicator that tracks the total number of futures positions associated with Bitcoin, which is currently open to all derivative exchanges.
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When the value of the indicator rises, it means that investors are opening up more positions in the market. Usually, when this happens, the total leverage present in the industry increases, so this trend leads to more volatility For assets.
On the other hand, the declined indicator means that futures users are closing their positions or forcibly liquidated by their platforms. With the leverage of this trend, the leverage ratio has declined and the market can act in a more stable way.
Now, here is a chart shared by analysts showing the trend of Bitcoin’s open interest and its 90-day changes over the past few years:
As shown in the above chart, Bitcoin’s open interest hit an all-time high of $33.6 billion in January (ATH). Interestingly, this peak in the indicator coincides with ATH in the price itself.
As mentioned earlier, the rise in open interest may lead to volatility in cryptocurrencies. The reason behind this is the fact that large-scale liquidation incidents (commonly known as squeezewhen the market is overused, it may happen more likely.
In this case, the sharp swing of the price triggers a large number of simultaneous liquidation, ultimately acting as fuel for the movement itself, thereby lengthening its length. This releases a series of further liquidations. In theory, volatility that emerges from the increase in open interest can bring Bitcoin in any direction. During the earlier bull rally, the increase in open interest was accompanied by bullish momentum.
However, as can be seen from the chart, the indicator reaches a turning point at the aforementioned peak. With the bearish momentum taking over Bitcoin, it is now the turn for the bulls to be liquidated. The huge squeeze of price declines helps further down, thus explaining its clarity.
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Today, open interest is only $23.1 billion, with the 90-day change of the indicator at -14%. In the chart, Quantum highlights previous deleveraging events that plummeted in a similar way.
“From historical trends, every such past provides a great opportunity for the short- to medium-term period.” Now, it remains to be seen whether the cooling time in the futures market is enough to allow Bitcoin to see a rebound.
BTC price
At the time of writing, Bitcoin was trading at about $83,500, up 1% in the past 24 hours.
Featured images from dall-e, charts from cryptoquant.com, tradingview.com
