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TLDR
- Bitcoin experienced a $12 billion open interest wipeout, dropping 19% from $61.42B to $49.71B
- Analysts view this as a “natural market reset” essential for sustaining bullish momentum
- The deleveraging coincided with price volatility triggered by uncertainty over Trump’s tariffs and US interest rates
- Historical trends suggest similar deleveraging events have provided good opportunities in the short to medium term
- Bitcoin is currently trading around $83,400-$83,500, with open interest showing a slight 6.5% increase in recent days
The cryptocurrency market recently saw a major reset in Bitcoin trading positions. A massive $12 billion wipeout in Bitcoin’s open interest occurred earlier this month.
This dramatic deleveraging might actually be good news for the leading cryptocurrency, according to market analysts.
Open interest is a key metric in cryptocurrency markets. It tracks the total number of unsettled Bitcoin derivative contracts like options and futures. This number tells us how much leveraged trading is happening.
The recent drop was steep and fast. On February 20, Bitcoin’s open interest stood at $61.42 billion. By March 4, it had fallen 19% to $49.71 billion, according to data from CoinGlass.
This wasn’t a random market movement. The deleveraging happened during a period of price swings. Bitcoin’s value was bouncing up and down due to uncertainty about US President Donald Trump’s tariff policies.
Political factors played a big role. As one analyst from CryptoQuant named DarkFost explained,
“Following the recent panic triggered by political instability linked to Trump’s decisions, we witnessed a massive liquidation of leveraged positions on Bitcoin.”
The price impact was clear to see. On February 25, Bitcoin’s price fell below $90,000. Just two days later, it dropped below $80,000 for the first time since November 2023.
These key support levels being broken caused concern. The price retreated to levels last seen shortly after Trump’s election victory in November. This quick reversal erased months of gains.
Currently, Bitcoin trades around $83,400-$83,500. This represents a 14.58% decrease over the past 30 days, showing the impact of the recent market volatility.
Some experts see this as a healthy correction. DarkFost described it as “a natural market reset, an essential phase for sustaining a bullish continuation.” This perspective views the deleveraging as necessary for long-term growth.
History might support this optimistic view. According to analysts, previous similar deleveraging events have created good opportunities for traders in the short to medium term.
Federal Reserve Meeting
The Federal Reserve’s actions could influence what happens next. The March 19 Federal Open Market Committee meeting might add more volatility if there are any surprises in monetary policy.
Market expectations currently show a 99% chance the Fed will keep interest rates steady. This consensus comes from the CME Group’s FedWatch tool, which tracks market sentiment about future rate decisions.
Any unexpected hawkish signals from the Fed could put pressure on Bitcoin. Bitget chief analyst Ryan Lee notes that this could affect Bitcoin along with other risk assets if the Fed surprises markets.
Open interest has shown small signs of recovery. At the time of writing, it sits at $49.02 billion, representing an approximate 6.5% increase over the past five days. This suggests some traders are returning to the market.
This pattern of deleveraging isn’t unique to the current market. Looking at historical trends, Bitcoin has experienced similar resets before. Each time, according to analysts, these events have provided good trading opportunities afterward.
The recent peak in open interest coincided with Bitcoin reaching an all-time high price in January. This correlation supports the theory that excessive leverage can lead to price volatility in either direction.
When too many traders use leverage, a small price movement can trigger cascading liquidations. This creates a domino effect that amplifies price swings, explaining why Bitcoin’s recent price drops were so sharp.
The 90-day change in open interest is now at a low of -14%. This cooldown in the futures market might create the conditions needed for Bitcoin to find stable footing and potentially rebound in coming weeks.
