4 billion in liquidations wiped out the derivatives market, sending BTC lower by 19% at the intraday lows yesterday. Crypto Twitter went into panic, as exchanges were unresponsive, investors struggled to fill orders, and fears of a bear market began to spread.
Days like yesterday make it easy to panic sell without thinking about what was actually happening. Although the charts looked horrible, on-chain data was flashing completely different signals, showing that long-term holders and large cohorts were not selling this pullback.
For the last few weeks, futures open interest have been soaring, increasing from 9 billion to a peak of 12.8 billion. Within hours after BTC crashed, open interest dropped from 12.8 billion back to 9 billion and has been holding steady since.
The speed of the massive drop in price made it look like whales and long-term holders were dumping, but this was mostly forced liquidations all happening at once, causing prices to fall until the next bid. In short, there was not enough demand at that time to absorb the billions in liquidations. This is the price the market pays for adding leverage and derivatives. When open interest rises quickly or a trade becomes stacked, leverage tends to be flushed out.
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