Bitcoin margin borrowing and crazy high OI are disrupting the market, whales are selling

A prominent analyst attributed Bitcoin’s $ 9,000 decline in just hours on Tuesday to a spate of leveraged traders and borrowers leaving the market.

Take out a loan edge Bitcoin and OI crazy high

With rumors circulating about the culprit behind Bitcoin’s massive drop in prices, analysts gathered data to understand what caused it.

According to Willy Woo, the similar crash in March 2020 was due to measures taken to deal with the corona epidemic, but the event this Tuesday showed a huge difference.

Leverage markets were sold, but investor purchases grew stronger.

BTC flash crashes are caused by deleveraging, the COVID crash was similar in that derivatives overreacted, but at the time it was backed by investors. This one was completely different and a mystery.

Cheap coins pic.twitter.com/Q1nIQ3T56R

– Willy Woo (@woonomic) September 8, 2021

“The leveraged market is sold out, but investor purchasing power has increased more. problem Flash of Current BTC Because Debt write-off (reducing leverage) was similar to the COVID incident in that derivatives overreacted, but at the time it was preferred by investors. This is very different and a mystery. Coins are cheap“.

Woo then suspects that this decline is due to margin lending and open interest. In the classic domino effect, deleted positions result in mass liquidation and an obvious succession. This has had a major impact on spot prices. Wow again emphasize:

“I think I found the culprit. Despite the insanely high open interest, spot margin lending was also at its peak, which led to the crash. Both markets combined in the classic pullback that pushed prices down. Long margin in the spot market is less liquidated than derivatives. The OI is not too high, it is in the normal range. “

“Healthy cleaning”

While the processes involved can be complicated for the casual observer, Bitcoin’s rebound and continued buying by investors suggest that holders’ nervousness regarding this event is unrelated.

According to on-chain monitoring source Whale card, new major investors created the greatest selling pressure.

“Yesterday, BTC suffered a sell-off. This move was quite aggressive and large volumes were sold on the spot market. But who sold? No HODLers. Mainly whales and actually people who recently bought BTC. “

Outflow from cBitcoin elephant | Source: Walkarte

Meanwhile, analyst William Clemente gave the derivatives market a welcome reboot yesterday.

Meanwhile, futures open interest have been wiped out, financing rates have gone negative, and the leverage ratio has been wiped out.

Boost investor activity + leveraged speculators = healthy purge pic.twitter.com/9bD4JBsMDl

– Will Clemente (@WClementeIII) September 8, 2021

“Open interest in futures crashed, financing rate negative and debt gone.

Increased investor activity + speculators with extinguished leverage = healthy cleanup.

92% Futures contract position Bitcoin has bag liquidation

Yesterday’s liquidation of $ 3.42 billion long positions accounted for more than 92% of all Bitcoin futures positions.

Among them, the Bybit platform alone has liquidated $ 1.3 billion. It is followed by Huobi ($ 836 million), Binance ($ 795 million), OKEx ($ 400 million) and Deribit ($ 115 million).

A total of $ 1.4 billion in Bitcoin positions, $ 928 million in ETH positions and $ 223 million in XRP positions were liquidated. Followed by SOL, ADA and DOGE with $ 98 million, $ 84 million and $ 80 million, which were destroyed according to data from the on-chain analysis tool Bybt.

Co-CEO Sam Trabucco of Alameda Research has shown that the move is nearly regular, citing similar data on premiums and futures open interest prior to the previous crash.

“The setup is the same every time: futures with really high spreads. This shows strong buying, open interest has increased, buyers are opening positions, the volume has increased. That is, there is a net buy. And the “increasing amount” gives people the opportunity to shop at high prices. This is important because the next level of setup is the decreasing number. “

Source: Sam Trabucco

In total, more than 376,000 individual trading accounts were affected by the drop in prices, from the Binance to FTX or Bitfinex exchanges. Before that, such a dramatic move – that happened in early 2021, when Bitcoin and other altcoins hit all-time highs – came as an unexpected shock to many people.

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