Flash Crash Occurs Shortly After Bitcoin Reaches New ATH

Billions of dollars in leverage vanished within the crypto market as Bitcoin (BTC) took a sudden 14% nosedive within a few hours after briefly hitting a fresh all-time high. Traders using options and futures to get exposure to Bitcoin are facing a staggering $1 billion loss after the cryptocurrency lost its price peak on March 5th, 2024, where it also recorded a new all time high (ATH).

Declining OI

On March 6th, Santiment, an on-chain analytics provider, noted a significant decline in total open interest (OI) on exchanges for Bitcoin, Ethereum, and Solana following the recent all-time high experienced by BTC. The open interest of Bitcoin plunged by $1.46 billion (-12%), whereas Ethereum dropped by $967 million (-15%) and Solana tumbled by $424 million (-20%).

Santiment explained that most of the speculation on the price of Bitcoin revolved around traders opening long positions, expecting the flagship crypto to surpass its all-time high and maintain a price above $70,000. A smaller portion of the downturn came via liquidated short positions as Bitcoin touched its new high.

Part Of The Process

This decrease in open interest suggests a temporary removal of speculative excess within the markets, according to Santiment. Open interest refers to the total number of open positions traders have taken on a derivatives contract. It increases when traders open new positions and decreases when they close existing ones.

While the sudden downward movement of Bitcoin might have rattled the market, many experts view derivatives flush-outs as a normal part of price fluctuations. One notable crypto trader known as Daan Crypto Trades highlighted that about $3 billion in open interest was lost during this correction, with approximately 312,500 traders being liquidated, totaling $1.13 billion in liquidations over the past 24 hours.