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Data shows the Bitcoin futures market has seen a massive deleveraging event recently. Here’s what this reset could mean for BTC, based on past trends.
Bitcoin Open Interest Has Gone Through A Crash Recently
As pointed out by an analyst in a CryptoQuant Quicktake post, the BTC Open Interest has seen a retest recently. The “Open Interest” refers to an indicator that keeps track of the total amount of futures positions related to Bitcoin that are currently open on all derivatives exchanges.
When the value of this metric rises, it means the investors are opening up more positions on the market. Generally, the total leverage present in the sector goes up when this happens, so this kind of trend can lead to more volatility for the asset.
On the other hand, the indicator going down implies the futures users are closing up positions or getting forcibly liquidated by their platform. As leverage decreases following such a trend, the market can act in a more stable manner.
Now, here is the chart shared by the analyst, that shows the trend in the Bitcoin Open Interest, as well as its 90-day percentage change, over the last few years:
As displayed in the above graph, the Bitcoin Open Interest shot up to a new all-time high (ATH) of $33.6 billion back in January. Interestingly, this peak in the indicator coincided with the ATH in the price itself.
As mentioned before, a rise in the Open Interest can lead to volatility for the cryptocurrency. The reason behind this lies in the fact that a mass liquidation event, popularly known as a squeeze, can become more probable to occur when the market is overleveraged.
In such an event, a sharp swing in the price triggers a large amount of simultaneous liquidations, which end up acting as fuel for the move itself, thus elongating its length. This unleashes a cascade of further liquidations. The volatility emerging out of an increase in the Open Interest can, in theory, take Bitcoin in either direction. During the earlier bull rally, the Open Interest increase was accompanied by bullish momentum.
From the chart, it’s visible, however, that the indicator reached a turning point around the time of the aforementioned peak. As bearish momentum took over Bitcoin following the ATH, it was now the turn of the bulls to get liquidated. The massive long squeezes that the price legs down induced helped to further the price decline, explaining its sharpness.
Today, the Open Interest is down to just $23.1 billion, with the indicator’s 90-day change sitting at a notable low of -14%. In the chart, the quant has highlighted the previous deleveraging events where the metric plummeted in a similar manner.
“Looking at historical trends, each past deleveraging like this has provided good opportunities for the short to medium term,” notes the analyst. It now remains to be seen whether this cooldown in the futures market will be enough for Bitcoin to see a rebound or not.
BTC Price
At the time of writing, Bitcoin is trading at around $83,500, up 1% in the last 24 hours.
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com
Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.
Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.
In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.
Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.
Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..
Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.
Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.
As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.
Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.
Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.
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