Bitcoin’s recent decline to $61,000 has triggered a significant deleveraging event in the cryptocurrency market, particularly in the futures market. Notional Bitcoin futures have fallen by $5.2 billion over the past week, indicating a reduction in leverage among traders.
According to data from Coinglass, the total value of futures contracts traded on major exchanges has plummeted during this period. Open interest for Bitcoin futures contracts currently stands at $28.3 billion as of Wednesday, marking a notable decline from previous levels.
Amberdata’s Director of Derivatives, Greg Magadini, described the recent market activity as a deleveraging event, attributing it to growing geopolitical tensions in the Middle East and unexpected economic data in the U.S. Despite Bitcoin’s recent fall from its all-time high of $73,000 last month, Magadini emphasized that the fundamentals for Bitcoin remain strong.
Futures contracts allow traders to speculate on asset price movements, and Magadini highlighted that leveraged long positioning in the Bitcoin futures market was at extreme levels last week. As the cost of holding leveraged long positions increased, funding costs for Bitcoin futures rose sharply, reaching 25% on an annualized basis. However, following the recent market turbulence, funding costs have decreased to 8%.
Liquidations in the Bitcoin market have also been significant, with $90 million worth of Bitcoin liquidations occurring in the past day, according to Coinglass. The majority of liquidations took place on exchanges such as OKX and Binance. However, liquidations earlier in the week were much more severe, totaling $1.8 billion worth of positions closed.
Magadini expressed concerns about potential cascading pullbacks associated with Bitcoin’s halving, which is expected later this week. However, he noted that the recent market turbulence may have preemptively cleared out precarious leverage positions.
“Investors had to sell due to existing long positions, but the recent market activity may have preemptively addressed potential concerns,” Magadini explained.