Bitcoin crashed by a lot of figures in just a day. No one knows what happened. However, some analysts have come up with a possible reason for liquidating over-leveraged positions on the futures market. Bitcoin is currently trading at $46,400, an 8.92% drop from yesterday.
The Futures Market and BTC
Based on Sam Trabucco’s tweet thread, it is not the first time bitcoin futures have influenced the market. It has happened before and might happen again.
Earlier this year, the top crypto touched a new all-time high above $65,000. In turn, futures also went up, and open interest in all significant contracts shot up.
In May, Bitcoin plunged to about half the April value and hit $30,000. A significant sell-off was taking place at this point. It was after Tesla announced they would no longer accept bitcoin payments. Concerns came up about the environmental harm that crypto mining causes.
For some time, the price remained around that level. However, with time, the price recovered to $50k. Notably, the futures were also up at this point then dipped a little.
Why Bitcoin Futures Matter
From the trend, we can comfortably deduce that when futures are high, it suggests aggressive buying. According to Crypto VizArt, a CryptoQuant analyst, the buyers open positions when Open Interests go up. However, when numbers go up, it indicates net buying.
When numbers are going up, it is the opportunity for enthusiasts to buy at higher prices. It is essential to note this because, after that period, the next is characterized by numbers going low. Consequently, some of the aggressive net buyers who bought near the top get liquidated. The process continues because the crash keeps on for a few minutes.
Last week, there was high premia all across the crypto market. The OIs were also extensive and growing fast. The crypto market was generally rallying. Also, the news of El Salvador purchasing 400 bitcoins boosted optimism in the crypto market. The optimism saw the most prominent crypto by market cap approach the $53K level.
Come last night. The numbers started going down slowly but noticeably. Over the next few hours, the price was taking significant steps downwards. Billions got liquidated in that short amount of time.
Of course, nobody saw this coming because the rally did not last for long. Rumours were going around about an upcoming rally. Some people overleveraged longs on BTC and did not look into the slight dip to $50K. When it broke, the price went downhill from there.
Willy Woo believes that bullish positions on the futures market were not enough to cause the drop. That is despite how leveraged they were. However, any analysis is up for interpretation, and there is never an absolute truth. Trading accounts for multiple factors, and especially in crypto, the markets are pretty inexplicable.
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