Last week’s bitcoin crash was a brutal event for the market. This saw the digital asset lose its footing before the recovery began, from where it crashed below $30,000 to mid-$17,000. With the onset of the new week, the market started emerging in the green. But as bitcoin struggles to hold above $20,000, the question remains as to what caused such a crash.
a small squeeze
Bitcoin’s open interest in Purpose has increased over the past few weeks. This situation has persisted due to the decline in the market and the subsequent recovery. However, open interest levels, mainly rising and falling, are all reason for a small squeeze during and during the bitcoin crash.
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On Wednesday, after a week of unpredictable volatility, open interest in Bitcoin Purpose finally reached a new all-time high of 335,000 BTC. This was when bitcoin fell below $21,000. As the price of the digital asset began to correct, open interest in Purpose declined sharply. Such movements are associated with a brief squeeze, which was the case in this case as well. One that was preceded by another accident during the weekend.
Open interest remains elevated | Source: Arcane Research
It was the same on the weekend as well. When the price dropped to mid-$17,000 after an uncertain volatility, the open interest in Purposes rose once again to 325,000 BTC, this time around. Since then there has been another drop in open interest as the price of BTC has recovered, albeit at a slower pace this time.
Bitcoin Purpose Trading at a Discount
Bitcoin wallets are still trading at a discount to spot prices. It should come as no surprise that the bitcoin funding rate has remained below neutral even during the crash and massive sell-off. Additionally, nothing significant has happened with respect to Bitcoin Purpose through the crash and eventual recovery,
Funding rates below neutral | Source: Arcane Research
Interestingly, the funding rate remains neutral for now as BTC price is struggling above $20,000. One place where funding rates have had the biggest impact is on Deribit. Since it is rumored to be closely associated with Three Arrows Capital (3AC), the drop in funding rates added to bankruptcy fears and rumors of 3AC’s crash.
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However, it is important to note that Deribit has assured the public that it will remain financially sound even if the 3AC loans are forfeited. Funding rates have begun to stabilize as the market begins to move from last week’s crash, although they are slightly below neutral.
BTC declines to mid-$20,000s | Source: BTCUSD on TradingView.com
Featured image from CNN International, charts from Arcane Research and TradingView.com
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