TLDR
- Bitcoin experienced a major $12B open interest wipeout, dropping 19% from $61.42B to $49.71B between February 20 and March 4, 2024
- Analyst DarkFost describes this as a “natural market reset” that may create good short to medium-term opportunities based on historical trends
- The deleveraging occurred amid price volatility triggered by uncertainty over Trump’s tariffs and future US interest rates
- Bitcoin’s price fell below $90,000 on February 25 and below $80,000 on February 27, trading at around $83,400-$83,500 currently
- Previous similar deleveraging events have historically provided good opportunities for Bitcoin, according to analysis of past trends
The cryptocurrency market experienced a significant shake-up in late February and early March as Bitcoin underwent a major deleveraging event. Between February 20 and March 4, Bitcoin’s open interest dropped by nearly $12 billion, representing a 19% decrease from $61.42 billion to $49.71 billion.
Open interest, which tracks the total number of unsettled Bitcoin derivative contracts including futures and options, is a key metric for measuring market leverage. This recent drop coincided with Bitcoin’s price falling below crucial price levels, first dropping under $90,000 on February 25.
Just two days later, on February 27, Bitcoin’s price fell below $80,000 for the first time since November 2023. The cryptocurrency has since recovered slightly and is currently trading around $83,400-$83,500.
CryptoQuant contributor DarkFost described this market reset as “essential” in a March 17 report. According to the analyst, this type of deleveraging is a natural phase needed to sustain a bullish continuation in the market.
The market reset came amid growing uncertainty over several economic factors. Political instability linked to US President Donald Trump’s tariff decisions triggered what DarkFost called a “massive liquidation of leveraged positions on Bitcoin.”
Further complicating matters was uncertainty about the future of US interest rates. Bitget chief analyst Ryan Lee told Cointelegraph that Bitcoin’s price and open interest could see more volatility depending on the outcome of the Federal Open Market Committee meeting.
The market largely expected the Federal Reserve to hold rates steady, with the CME Group’s FedWatch tool indicating a 99% probability of rates remaining unchanged. Any unexpected hawkish signals, however, could put pressure on Bitcoin and other risk assets.
Following the deleveraging event, Bitcoin’s open interest has shown signs of recovery. At the time of reporting, the metric sits at $49.02 billion, representing an approximate 6.5% increase over a five-day period.
Good buying opportunity?
Historical data suggests this type of market reset might actually present opportunities for investors. DarkFost noted that “looking at historical trends, each past deleveraging like this has provided good opportunities for the short to medium term.”
The recent open interest pattern mirrors previous market cycles. In January, Bitcoin’s open interest reached an all-time high of $33.6 billion, which interestingly coincided with Bitcoin’s price also hitting an all-time high.
This correlation demonstrates how increased open interest often leads to greater market volatility. When markets become overleveraged, the risk of a “squeeze” increases – a situation where a sharp price movement triggers mass liquidations.
During the earlier bull rally, rising open interest accompanied bullish momentum. However, as bearish sentiment took over following Bitcoin’s peak, long positions began to get liquidated, fueling further price declines.
The 90-day change in open interest now sits at -14%, marking a cooldown in the futures market. This reduction in leverage could potentially create a more stable environment for Bitcoin in the coming weeks.
Market analysts remain divided
Market analysts remain divided on whether this deleveraging will be enough for Bitcoin to see a rebound. Some view the cooldown as a healthy reset that removes excessive speculation from the market.
Others caution that additional economic factors, including global trade tensions and monetary policy decisions, will continue to influence Bitcoin’s price trajectory in the near term.
As the market digests this information, traders and investors are watching closely to see if history will repeat itself, with this deleveraging event potentially setting the stage for Bitcoin’s next move.
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