A host of new crypto investors got their first real taste of the volatility possible with Bitcoin (BTC) and the broader digital asset market as Tuesday saw a 14.5% intraday swing in BTC price after it hit a new all-time high above $69,300 on Coinbase, only to flash crash to a low of $59,290.
The bears’ effort to pin the top crypto below $60,000 was thwarted by a strong reaction from dip-buying bulls, who pushed it back above $63,000 by the close of the daily candle. Not content to rest at that support level, bulls continued to push the price action on Wednesday, briefly rallying to a high of $67,680 before BTC pulled back to support at $66,700, where it currently trades.
BTC/USD Chart by TradingView
While many crypto detractors were quick to say the blow-off top had come and it's only down for BTC from here until the next cycle, those more experienced with cryptocurrency bull markets said that Tuesday’s price action was but a healthy correction following a FOMO-driven run up, and the pullback helped clear some of the speculation and froth.
Bitcoin holders who purchased anywhere below $65,000 remain well in the green, but derivatives traders were hit hard by the uptick in volatility, with longs coming out on the losing end this time around.
Data provided by Coinglass shows that a total of $853.5 million in long positions and $246.8 million in short positions were liquidated over the past 24 hours for a total of $1.1 billion.
“Total open interest (OI) on exchanges for #Bitcoin, #Ethereum, and #Solana have declined significantly after the $BTC #AllTimeHigh earlier today,” market intelligence firm Santimenttweeted on Tuesday.
“When today's exchange open interest dropped for #Bitcoin, especially, this represented the flushing of many over-speculative trades who were primarily: Longing in anticipation of the $BTC #ATH, resulting in many closing their positions before prices retraced; Longing in anticipation of $70K $BTC, resulting in many getting liquidated after prices retraced; or Shorting in anticipation of the $BTC #ATH not hitting yet, resulting in many shorts getting liquidated on the way to today's short-lived new all-time high,” they said.
As a result of the liquidations, they noted that open interest in Bitcoin has declined by $1.46 billion (-12%), while the open interest for Ethereum (ETH) and Solana (SOL) has dropped by $967 million (-15%) and $424 million (-20%), respectively.
“In a way, we can view this open interest plummet as a sign that 'speculative excess' has been temporarily removed from the markets,” Santiment said. “Assuming funding rates can even out, prices can theoretically fluctuate under less influence of futures and options positions, and more on a true supply and demand market valuation from traders, investors, and #hodlers.”
“Though the trend of a high long vs. short ratio is still persisting after markets retraced [on Tuesday], dropped open interest levels can often precede funding rate levels evening out, which would assist in #cryptocurrency assets everywhere having a quick rebound,” they concluded. “A continued decline is historically beneficial.”
It remains to be seen if Bitcoin’s price will slide lower from here, consolidate, or continue its march higher.
According to Jag Kooner, Head of Derivatives at Bitfinex, “The options market saw a significant temporary rise in call option open interest for strike prices above $100,000 for the first time in history. The current OI for call options above this strike price is close to $850 million, however, most of these have very long-dated expiries.”
“Even though several traders and investors are panicking after the subsequent flash crash to sub $60,000 levels, this just mirrors the price action in 2020 where BTC moved past its previous cycle high around $19,890 briefly and moved down 15 percent immediately causing a large number of long liquidations,” he said. “It took BTC around 15 days to move back past the new high in 2020, however, we expect it to move past the current ATH even faster considering the pace with which we have moved higher this cycle.”
“As for market fundamentals, this dip allowed for an OI flush, wiping $4.5 billion worth of open positions from the market,” Kooner noted. “Funding rates that were as high as 130 percent on some major exchanges have also settled down. This is healthy for a BTC uptrend.”
Legendary technical analyst and Bollinger Bands creator John Bollinger called Tuesday’s flash crash “excessive,” and said while it might not be the top for the current cycle, a failure to have a strong follow up rally could spell trouble in the near term.
We expect profit taking at new highs, that is the way of things, but this seems a bit much. Is it leverage, weak hands, or something else? $btcusd In any case, a one-day setback does not a top make. However, a failed rally attempt would be ugly! #BTC
— John Bollinger (@bbands) March 5, 2024
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