Bitcoin Sudden Shakeout Wipes Out $120M in Open Interest; Warning Against Excessive Leverage
thecryptobasic.com 22 August 2024 10:52, UTC Bitcoin recently experienced a sudden market shakeout, erasing $120M in open interest as the market recovered from the week-long sideways movement.
According to data from CoinGlass, about 2,000 BTC in open interest was wiped out when Bitcoin’s price fell from approximately $62,000 to just around $59,900 earlier today. This sudden drop exposed the vulnerability of over-leveraged long positions, leading CoinGlass to warn traders to lower their leverage.
The price action during this sharp drop, which was followed by a weak recovery, signaled continued market fragility. Although BTC has since bounced slightly to $60,912 during this press, the recovery lacked momentum to reach the initial levels.
This suggests that while the market found temporary support, buyers have not yet regained control. Notably, the trading volume remained muted during the rebound, indicating limited buying interest, which leaves the door open for further instability.
Market Over-Leveraging
Market indicators such as cumulative volume delta (CVD) and funding rates revealed further insight into the pressure faced by traders. The CVD saw a sharp drop during the price decline, reflecting strong selling pressure.
Simultaneously, funding rates shifted from positive to negative, signaling a shift from bullish to bearish sentiment.
This shift notably impacted open interest, with around 2,000 BTC contracts valued at over $120 million being liquidated as the price dropped. These liquidations, totaling approximately 224,614 aggregated liquidations, reflect a market heavily reliant on leveraged positions, which proved unsustainable in the face of the sharp downturn.
As of the latest data on the chart, Bitcoin’s Open Interest has been trending upwards, sitting at approximately $31 billion with a 4.9% increase in the last 24 hours. This indicates significant outstanding futures contracts, a clear signal that traders are taking leveraged positions on Bitcoin.
High Leverage at $60k
The chart below illustrates a liquidation heatmap for the BTC/USDT perpetual contracts on Binance over a 12-hour period. The heatmap shows that many traders are using high leverage, particularly around key psychological levels like $60,000.
Several horizontal bands below the $60,000 level indicate additional liquidation pockets extending toward lower price levels (closer to $58,000). The clusters of liquidations indicate that the market was overly leveraged, leading to forced liquidations.
Sell Pressure Continues to Suppress Bitcoin’s Price
As the dust settled, Bitcoin’s market continued to face pressure from an imbalance in buy and sell orders. As of August 21, exchange market depth data revealed a substantial rise in sell orders, with 53,000 BTC on the sell side compared to 47,000 BTC in buy orders.
This imbalance has kept Bitcoin’s price subdued, with the market showing little sign of a strong recovery. Adding to this pressure are external factors, such as the U.S. government and FTX creditors moving large amounts of BTC into exchanges.
As a result, Bitcoin’s price remains stuck in a narrow consolidation range around the $60,000 mark, reflecting an extended period of uncertainty and volatility.
