As an experienced analyst, I’ve witnessed my fair share of market dips and flush-outs in the crypto space. However, based on the latest developments, I believe that this time is different from what we’ve seen before. The recent Bitcoin price slump to a nine-week low below $57,000 and the subsequent 11% loss since last week is concerning, but James Check of Glassnode has pointed out some important nuances in this sell-off that set it apart from derivatives-led deleveraging events we’ve seen in the past.
Bitcoin‘s price dipped to a nearly three-month low of approximately $56,700 on May 1st, marking a 4% decline on that day alone. Since then, the cryptocurrency has experienced a significant loss of around 11%.
In the world of cryptocurrencies, market downturns and significant price drops, often referred to as “dips” and “flush-outs,” are common occurrences. However, according to James Check, an analyst at Glassnode, this particular instance might be distinct.
Significant derivaives-driven debt reductions were prominent during the 2021 stock market rally and have occurred multiple times this year, with the most recent instance taking place in mid-April.
However, Check observed that they did not cause this week’s crypto crash in a post to X on May 2.
Derivatives Not The Cause
As a researcher observing funding trends, I’ve noticed a gradual decrease in approval rates rather than a sudden drop. This development is encouraging as it indicates a more stable and sustainable funding environment.
“It suggests we didn’t see a massive futures margin call yesterday.”
As a derivatives market analyst, I would describe funding rates as fees levied by exchanges to ensure equilibrium between the prices of derivative contracts and their underlying assets.
For individuals who lived through the 2021 Bitcoin bull market, you’ll recall the significant derivatives-driven deleveraging incidents that ultimately brought an end to the market surge.
Are we seeing a derivatives led flush out today?
I don’t think so.
Funding rates have cooled off gradually, not violently, which is…
— _Checkmate (@_Checkmatey_) May 2, 2024
As a crypto investor, I’ve noticed an intriguing observation from the latest analysis. The expert presented a chart illustrating how Bitcoin futures Open Interest (OI) has decreased significantly in Bitcoin terms over the past year.
“This compares OI to market size and shows a relative leverage reduction,” he added.
The count of uncclosed crypto derivative agreements stands as Open Interest.
As a researcher studying the recent Bitcoin sell-off, I’ve observed that futures markets experienced two notable deleveraging episodes preceding this event. However, I want to emphasize that, based on my analysis, it seems derivatives weren’t the primary driving force behind the Bitcoin sell-off.
In my opinion, this price drop isn’t mainly due to derivative selling. Instead, it’s caused by a combination of increased supply from the sell side and decreased demand in the spot market.
Based on Deribit’s data, approximately $1.3 billion worth of open interest is registered for Bitcoin options expiring on Friday, signifying a strong appetite for derivatives.
Crypto Markets Bleed
As a researcher examining the financial markets, I’ve noticed a significant decrease in total market capitalization within the past week. Specifically, this figure has dropped by more than $240 billion, reaching a level of approximately $2.26 trillion during Thursday morning trading sessions in Asia.
The wider market has shrunk by 22% since its 2024 peak level of around $2.9 trillion.
The technical analyst known as Rekt Capital remained unperturbed, expressing his belief that the financial markets have returned to a regularly occurring period of collection or buying back of assets.
#BTC
The more Bitcoin consolidates anywhere between current price levels & $70,000 after the Halving…
As the Bitcoin cycle slows down and aligns once more with its historically recurring Halving Cycle, peaking around mid-September or October in 2025. ($BTC)
— Rekt Capital (@rektcapital) May 1, 2024
At the moment of composition, Bitcoin was priced at $57,469, while Ethereum experienced a 2% decrease to reach $2,920. The performance of altcoins varied, but Binance Coin (BNB) and Toncoin (TON) endured more substantial declines.
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2024-05-02 09:23