bitcoin hit a new all-time high, topping $69,300 this week, only to quickly correct by over 10%. Prior to this event, open interest in bitcoin futures and perpetual pairs rose to unprecedented levels.
Despite bitcoin's overall gain of nearly 55% in the last month, the sudden drop in its value has left investors uncertain about its future trajectory.
However, Santiment suggests that “speculative excess” has been temporarily removed from the markets.
Open interest plummets on exchanges
After hitting an all-time high on Tuesday, total open interest on bitcoin, ethereum, and Solana exchanges has seen a significant decline.
According to the latest Santiment report analysisThe decline in open interest, a measure of unsettled derivatives contracts such as futures and options, reflects a notable change in market sentiment.
bitcoin open interest fell by 12%, ethereum by 15%, and Solana by 20%. This reduction can be attributed to several factors, including the liquidation of excessively speculative trades.
Many traders who were long in anticipation of bitcoin's all-time high closed their positions before prices retreated, while others who longed for $70,000 bitcoin faced liquidation as prices fell. Similarly, traders who shorted bitcoin in anticipation of the all-time high not materializing still saw their positions liquidated during today's brief spike.
This decline in open interest suggests a temporary removal of speculative excess from the markets.
“”In some ways, we can see this drop in open interest as a sign that 'speculative excess' has been temporarily removed from the markets. Assuming funding rates can be equalized, prices can, in theory, fluctuate under less influence from futures and options positions, and more based on a true market valuation of supply and demand by traders, investors and hodlers. .
Historically beneficial?
As funding rates stabilize, Santiment noted that prices may fluctuate based more on genuine supply and demand dynamics than on the influence of futures and options positions.
Although the long-to-short ratio remains high despite the recent pullback, falling open interest could precede a leveling off of funding rates, which could lead to a rapid rally in crypto assets.
The analytics platform also said that “continued decline is historically beneficial.”
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