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Bitcoin's sharp downturn linked to futures liquidations: Bitfinex

Market sees $12.5 billion in open interest vanish over three days amid Bitcoin volatility.

Bitcoin's sharp downturn linked to futures liquidations: Bitfinex

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Bitcoin’s recent price crash has been notably influenced by futures contract liquidations, according to the “Bitfinex Alpha” report. Over the past month, Bitcoin (BTC) has oscillated between $71,300 and $63,500, with a significant crash on April 12 leading to over $1.8 billion in liquidations amid geopolitical tensions.

According to Bitfinex’s analysts, these market movements are not isolated incidents, as similar patterns have been observed previously, where dips below the range low were met with a swift recovery. Yet, this time, the market’s response may be more subdued, as indicated by current spot flows into Bitcoin.

The concept of “time capitulation” is at play here, where leveraged traders face capital erosion through stop-losses and liquidations, while large holders potentially engage in distribution or accumulation.

The introduction of new supply to the market is a critical factor. If absorbed, it could propel Bitcoin out of its current range. However, the high volume of market participants exiting leveraged positions is contributing to a healthier market ecosystem with minimal funding rates.

The past few days have seen daily liquidations comparable to those on March 5th, which brought significant volatility and a 14.5% intra-day price swing for Bitcoin. Despite a smaller 8.5% intra-day movement on the recent Friday, liquidations reached similar levels across major exchanges. Saturday’s liquidations were among the largest in the asset class’s history, with a 12% intra-day fluctuation.

Bitcoin's sharp downturn linked to futures liquidations: Bitfinex
Daily liquidations across major centralized exchanges. Image: Bitfinex/Coinglass

An interesting development during this correction is the neutralization of funding rates. These rates are crucial in aligning the price of perpetual futures contracts with the actual spot market price. The recent trend towards neutral or even negative funding rates across various altcoins suggests a healthier market correction and potentially reduced volatility ahead.

In line with the reduction of leveraged positions, the overall market saw a significant decrease in open interest, with approximately $12.5 billion vanishing over three days. This shift brought the total cryptocurrency market’s open interest down to $35.4 billion by Saturday, a stark contrast to the $48 billion peak just days prior.

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