Bitcoin's drop to $61,000 over the past week has eroded its significant leverage.
Look no further than the Bitcoin futures market. The market reported that the total value of futures contracts traded on major exchanges plummeted by $5.2 billion during that period. coin glass. As of this writing, open interest in Bitcoin futures contracts on Wednesday was $28.3 billion.
“This is definitely a deleveraging event,” said Greg Magadini, director of derivatives at Amberdata. Decryption He added in the interview that cryptocurrencies have been out of whack recently due to rising geopolitical tensions in the Middle East and better-than-expected economic data in the United States.
After hitting a new all-time high of $73,000 last month, Bitcoin has fallen 16% to its lowest level since February. Open interest in Bitcoin futures ballooned to $36 billion in March, with traders saying they expect the cryptocurrency's price to mostly rise. “Bitcoin fundamentals have never been stronger,” Magadini said.
Futures contracts (contracts to buy or sell an asset at a specific price at a later date) allow traders to speculate on changes in an asset's price. And based on the difference between payouts in the futures contract market and Bitcoin's spot price, Magadini said, “Leveraged long positions became kind of extreme last week.”
The cost of holding leveraged long positions in the Bitcoin futures market has ballooned, with funding costs for Bitcoin futures rising to 25% on an annualized basis, Magadini said. However, after a tumultuous week in the market, the cost of funding Bitcoin futures has fallen to 8%.
Meanwhile, $90 million worth of Bitcoin liquidation took place in the past day. coin glass, the bulk of the liquidations took place on exchanges OKX for $31 million and on Binance for $27 million. But last Friday's Thursday liquidation was even tougher. In total, $1.8 billion worth of positions were closed over the two days.
“It doesn't matter whether the fundamentals are good or not because everyone was already leaning in the same direction,” Magadini said. “If there are no more marginal buyers and everyone has the same position, then the moment there is some kind of selling, you have this kind of cascading effect.”
Before the liquidation, Magadini was concerned about Bitcoin's halving.expected later this week—If a trader chooses to sell the news, it could lead to a cascading decline. But this weekend's turmoil may have dispelled any potentially destabilizing influence.
“People had to sell because everyone was already long, but we got liquidations earlier for various reasons,” Magadini said. “Instead of ‘selling the news,’ we have something like a macro event that triggers a chain reaction.”
