The past week has been an eventful seven-day span for bitcoin price action and the overall cryptocurrency market. From the flagship cryptocurrency reaching a six-figure valuation to a “flash drop” below $90,000, investors have been through quite a few emotions over the past week.
Unsurprisingly, bitcoin's “flash crash” has been a major source of commentary in recent days, with several experts providing insights into how this phenomenon could impact bitcoin's trajectory. Below are some of the on-chain lessons learned from the sudden price drop, according to CryptoQuant's head of research.
What happened in the btc futures market?
In a new post on the x platform, CryptoQuant's head of research, Julio Moreno <a target="_blank" href="https://x.com/jjcmoreno/status/1865066343751438734″ target=”_blank” rel=”noopener nofollow”>heavy about the “sudden drop” in bitcoin price to around $88,800 on Thursday, December 5. For context, a flash crash refers to a scenario where the price of an asset drops abruptly but recovers almost immediately.
According to Moreno, the latest sudden drop experienced by the leading cryptocurrency was caused by a cascade of selling and deleveraging in the btc futures market. The crypto expert revealed that open interest decreased as the price of bitcoin fell on Thursday, indicating the liquidation of a significant portion of leveraged long positions in the futures market.
Furthermore, funding rates, which refer to periodic payments exchanged between traders in the perpetual futures market, saw a sharp drop when the price of bitcoin fell. When funding rates turn negative, it suggests that the market is turning bearish and short traders are willing to pay a premium.
Moreno noted that declining funding rates indicated that perpetual futures prices are falling faster than spot prices. It is worth noting that when funding rates are negative during a price decline, it could indicate that traders anticipate greater bearish pressure in the near term.
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Source: JJCMoreno/x
One on-chain observation that stood out from CryptoQuant's head of research post is that spot demand remains strong despite weak futures market dynamics. This is based on the Coinbase Premium metric, which tracks the price difference on Coinbase (a spot exchange) and other exchanges (usually dominated by futures). According to Moreno, the premium has strengthened into positive territory, reflecting strong buying interest among US investors.
bitcoin price at a glance
At the time of writing, the btc price sits just below the $100,500 mark, reflecting a 2% increase over the past 24 hours. According to data from CoinGecko, the leading cryptocurrency now has a market capitalization of more than $2 trillion.
The price of btc on the daily timeframe | Source: BTCUSDT chart on x/miqkGfB4/" target="_blank" rel="noopener nofollow">TradingView
Featured image from iStock, chart from TradingView
