Bitcoin has recorded significant losses in just the first week of December. The digital asset has taken some of the largest hits for the year in just last week alone following liquidations over the weekend. This has expectedly had a huge impact on the amount of open interest in bitcoin. Following the dump, BTC denominated open interest took a nosedive.
The dip in open interest was significant enough to near-record levels for 2021. With bitcoin losing more than $10,000 in value, open interest had declined rapidly. This is worrying given that open interest had dropped not too long ago and another drop this time around does not spell good news for the market.
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Bitcoin Open Interest Records Second-Largest Decline
With the drop from $54,000 to as low as $40,000 on some exchanges, open interest figures plummeted. The liquidations of future positions opened the asset up to a cascade of further liquidations and open interest dropped 26% in this time frame. BTC dominated open interest volumes fell from 390,000 BTC to 330,000, as reported by Arcane Research.
BTC Open Interests sees shart decline | Source: Arcane Research
Saturday saw the second-largest daily drop in open interest as it lost 58,000 BTC in one day alone. It is the largest decline in a six-month period as the last time the market recorded such a sharp decline in open interest was on May 19th, which admittedly recorded a larger decline than that witnessed on Saturday.
The drop in BTC denominated open interest correlates with the drop in price. OI (open interest) had peaked in April during the height of the first bitcoin bull rally but has repeatedly failed to attain the same high despite bitcoin recording a new high of $69,000 last month.
Another dip sends BTC price to $49K | Source: BTCUSD on TradingView.com
What Caused The Decline?
Violent sell-offs in the market following the bitcoin price crash had been the main culprit behind the decline in open interest. The sell-offs greatly deleveraged the market, leading to losses to the tune of billions. Although the futures market has now been thrown into a healthier state following the sell-off.
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The massive deleveraging saw crypto exchanges Binance and ByBit lose a significant portion of their open interest share. Both exchanges saw their shares of this market plunge 11% to its current position at 30%. Binance recorded a 40% fall in OI on its platform and ByBit recorded an even higher decline with a 45% crash in OI. Open interest is now $3.3 billionaire and $1.6 billion respectively on both exchanges.
Bitcoin denominated open interest has not recorded much recovery since the December 4th crash. Currently, open interest sits at 325,000 BTC, about 5,000 BTC lower than the 330,000 crash point on Saturday.
Featured image from The Spruce, charts from Arcane Research and TradingView.com