A few days ago, the price of Bitcoin (BTC) sharply dropped from $124,000 to below $118,000, resulting in $961 million in futures market liquidations. Notably, $821 million of that was from long positions.
Clearly, optimistic investors seeking a breakout have been caught, sweeping through long liquidity clusters and putting pressure on prices. At the time of writing, the price of BTC stands at $115,000 after a 2% drop for the day, with two large liquidity clusters accumulating.
So are we facing another bloodbath?
The rotation of Bitcoin causes a derivatives frenzy
A $1 billion cryptocurrency liquidation occurred as the market adjusted broadly. The TOTAL2 index (market capitalization excluding BTC) dropped by 3.84%, indicating that capital has also been withdrawn from altcoins. In short, this is not just a BTC-led move.
Currently, Bitcoin's dominance (BTC.D) is trying to regain its position, maintaining around 59% over the past week with a 0.40% jump for the day. Meanwhile, TOTAL2 dropped by 2.74%, confirming the trend back to BTC.
The derivatives market is also catching up. The Open Interest (OI) of BTC has increased by nearly $380 million in less than 48 hours, with the Estimated Leverage Ratio (ELR) rising, indicating a warming in speculative activity.
In summary, the market is returning to Bitcoin, altcoins are struggling, BTC's dominance remains around 59%, and derivatives are becoming increasingly active. It seems that volatility may increase in the near future.
Supporting this, in the past 24 hours, the total cryptocurrency liquidations reached $563 million, of which $485 million came from leveraged long positions. This is a severe shock, with over 85% losses for optimistic investors who have extended their positions.
Is the market sending a false signal? The small jump of 0.40% in BTC.D, combined with the increase in leveraged flows compared to spot – are we preparing for another $1 billion cryptocurrency liquidation?
Another cryptocurrency liquidation is approaching
It seems that the Open Interest (OI) of Bitcoin does not respond proportionally to price fluctuations. Even after a 4% drop from the all-time high of $124,000 in one day, OI remains above $80 billion – marking a clear divergence from previous cycles.
History shows that BTC peaks often synchronize with OI peaks, with OI dropping when BTC is sold off – this proves that traders are pulling back leverage. For example, during the price surge in May – BTC reached a high of $111,000 with OI at $81 billion.
The next day, OI dropped to $77 billion as BTC slipped to $107,000, leading to a larger wave of cryptocurrency liquidations. This time, even as BTC fell nearly 8% from the all-time high, OI had not peaked.
This indicates that the market has yet to fully start the deleveraging process. Traders are still holding positions, with the long buy ratio on Binance's BTC/USDT perpetual contract exceeding 60%.
In summary, the current structure is ready for another round of cryptocurrency liquidations if BTC continues to decline. OI is still increasing, and with high trading volumes on what appear to be false bullish signals, a wipeout of over $1 billion seems to have been predetermined.
