Bitcoin Perpetual Open Interest Suggests Short Squeeze To Crash


Last week’s Bitcoin crash was a brutal one for the market. It saw the digital asset lose its footing from where it was trending just below $30,000 to crash towards the mid-$17,000 before a recovery had begun. With the new week, the market began to appear in the green. But as bitcoin struggles to stay above $20,000, the question remains what caused such a crash.

A short squeeze

Bitcoin’s open interest in perpetrators had surged in recent weeks. This has remained so during the market crash and subsequent recovery. However, the open interest rates, mainly the rise and fall, leading up to and during the bitcoin crash are all about a short squeeze.

Related literature | By the Numbers: The Worst Bitcoin Bear Markets Ever

On Wednesday, open interest in bitcoin perps finally hit a new all-time high of 335,000 BTC after a week of unpredictable moves. This was when bitcoin had fallen below $21,000. As the price of the digital asset started to recover, open interest in perpetrators had rapidly diminished. Moves like this are associated with a short squeeze, which was the same in the case. One that preceded another crash over the weekend.

Open interest remains high | Source: mysterious investigation

The same was true for the weekend. Open interest in perps had risen again, this time to 325,000 BTC, after erratic moves as the price dropped to the mid-point of $17,000. Since then, another drop in open interest has been registered as the price of BTC has recovered, albeit more slowly this time.

Bitcoin Perps trading at a discount

Bitcoin presses are still trading at a discount to the spot prices. This is no surprise, as bitcoin funding rates have remained neutral to below neutral even during the crash and massive sell-off. In addition, nothing significant happened regarding the bitcoin perps from the crash and eventual recovery,

Financing rates below neutral | Source: mysterious investigation

Interestingly, funding rates have now remained below neutral as the price of BTC struggles above $20,000. One place where funding rates have had the most impact has been on Deribit. As it is rumored to be closely intertwined with Three Arrows Capital (3AC), the decline in funding rates sparked insolvency fears and rumors related to the 3AC crash.

Related literature | Liquidations of Bitcoin Miners Threaten Bitcoin’s Recovery

However, it is important to note that Deribit has assured the public that it will remain financially sound even if its 3AC debts are forfeited. As the market begins to develop after last week’s crash, funding rates have begun to stabilize, although they remain slightly below neutral.

BTC Drops To Mid $20,000 | Source: BTCUSD on TradingView.com
Featured image from CNN International, charts from Arcane Research and TradingView.com

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