Bitcoin crash wipes out 25% of open interest.
Data shows the Bitcoin Open Interest has dropped by 25% following the crash to levels below $26,500, the largest drop in around 1.5 years.
🌎《Now you can now start trading at TNNS PROX》📈
🔥Start trading today, click "sign up" from the link above.
Bitcoin crash wipes out 25% of open interest. Bitcoin Open Interest Has Plunged 25% After Price Plummet
According to an analyst in a recent CryptoQuant post, the decrease in open interest could indicate a potential bottom for the cryptocurrency market. Open interest refers to the total amount of Bitcoin positions (measured in USD) that are currently open on all derivative exchange platforms. Bitcoin crash wipes out 25% of open interest.
When this metric increases, it signifies that speculators are opening new positions in the market. Typically, the total leverage in the market also rises when new positions emerge on exchanges.
However, a high amount of leverage can lead to instability in the sector. Therefore, when open interest reaches high values, the price of the asset becomes more likely to display some volatility.
On the other hand, a decrease in this metric suggests that some investors are closing their contracts or possibly getting liquidated. This can lead to the cryptocurrency market becoming more stable as there are fewer positions open.
Please refer to the chart below, which shows the trend in the percentage change of Bitcoin open interest over the past couple of years:
The Bitcoin Open Interest percentage change has sharply decreased as shown in the graph above due to the recent decline in the cryptocurrency's value. This indicates that the indicator has been significantly impacted by the volatile event.
The decrease in value is a result of a large number of investors liquidating their positions, which is commonly referred to as a "squeeze." A squeeze occurs when a sharp price move triggers a large number of liquidations, which in turn fuels further volatility and more liquidations.
The recent crash has also experienced a cascade of liquidations, resulting in over $2.5B of Open Interest being wiped out, equivalent to 25% of the total Open Interest, according to the quant.
With such a significant drop in Open Interest, the market may become more stable, as the risk of another squeeze occurring may have significantly decreased.
"This flushing out of speculators means that Bitcoin will likely seek a bottom where long-term investors will start accumulating again," notes the analyst.
The volatility observed in the last day is a significant departure from the previous endless sideways movement of BTC. However, it remains to be seen whether the market will remain active in the coming days or if it will slump back to stagnation.
At the time of writing, Bitcoin is trading around $26,300, down 10% in the last week.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.