Deleveraging the Bitcoin Market – Here’s What’s Going On

As Bitcoin fell to $61,000 last week, much of its leverage was eliminated.

Looking at the Bitcoin futures market, 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 stood at $28.3 billion on Wednesday.

“This is absolutely a deleveraging event,” said Greg Magadini, director of derivatives at Amberdata. decryption He added in the interview that heightened geopolitical tensions in the Middle East and stronger-than-expected economic data from the United States have recently destabilized cryptocurrencies.

Following the record high of $73,000 last month, bitcoin It has since fallen 16% to its lowest price since February. Open interest in Bitcoin futures soared to $36 billion in March as traders bet that the price of the cryptocurrency would mostly rise. “Bitcoin’s fundamentals have never been stronger,” Magadini said.

Futures contracts (agreements to buy or sell an asset at a specific price at a later date) allow traders to speculate on the movement of an asset’s price. And based on the difference between settlement in the futures contract market and the Bitcoin spot price, Magadini said, “Leveraged long positioning has reached somewhat extreme levels in the last week.”

As the cost of holding leveraged long positions in the Bitcoin futures market has soared, the cost of funding Bitcoin futures has increased by as much as 25% on an annualized basis, Magadini said. However, after a turbulent week for the market, funding costs for Bitcoin futures fell to 8%.

Meanwhile, it is said that $90 million worth of Bitcoin was liquidated in the past day. coin glass, the majority of liquidations were on the OKX exchange with $31 million and Binance with $27 million. But the liquidation last Friday and Thursday was much more serious. In total, positions worth $1.8 billion were closed over the two days.

“It didn’t matter if the fundamentals were great because everyone was already leaning in the same direction,” Magadini said. “If there are no more marginal buyers and everyone is on the same page, the moment there is any kind of sale, we get a kind of cascading effect.”

Before the liquidation took place, Magadini feared a Bitcoin halving.expected later this week—If traders choose to sell the news, it can lead to a cascading decline. But this weekend’s turmoil may have removed some potentially volatile leverage.

“People had to sell because everyone had already bought, but we’ve been liquidated before for a variety of reasons,” Magadini said. “Instead of ‘selling the news,’ we have a kind of macro event that sets off a cascade.”