Crypto Market: $1B Liquidations – Are More Flash Crashes Coming?
Key Indicators of Potential Crypto Market Downturn
A recent Bitcoin dip from $124,000 to under $118,000 resulted in $961 million in liquidations, with leveraged longs taking the brunt of the hit at $821 million. This raises concerns about whether the market is heading towards another significant downturn.
Bitcoin is currently priced around $115,000 after a 2% intraday drop. Two substantial liquidity clusters are forming, indicating potential volatility.
Bitcoin's Dominance and Derivatives Market Activity
The overall crypto market experienced a pullback, with TOTAL2 (excluding Bitcoin) dropping by 3.84%, indicating capital outflow from altcoins. Bitcoin dominance is consolidating around 59%, while TOTAL2 declined by 2.74%, suggesting a rotation back into Bitcoin.
The derivatives market shows increased activity. Bitcoin Open Interest jumped by nearly $380 million in 48 hours, and the Estimated Leverage Ratio (ELR) is trending upwards, signaling higher speculative activity.
Source: CryptoQuant
Total crypto liquidations in the last 24 hours reached $563 million, with leveraged longs accounting for $485 million (85%+). This highlights the risk for bulls overextended in long leverage positions.
Open Interest Divergence Signals Potential Risk
Despite Bitcoin's 4% drop from its $124,000 ATH, Open Interest (OI) remains above $80 billion, diverging from historical patterns. Previously, Bitcoin tops aligned with OI peaks, followed by a decline in OI as traders unwound leverage.
In May, when Bitcoin reached $111,000, the OI was $81 billion. The next day, as Bitcoin fell to $107,000, OI decreased to $77 billion. Currently, the high OI, even with Bitcoin off its ATH, suggests the market hasn't fully deleveraged.
Source: Coinglass
The current market setup, characterized by high OI and a long skew on exchanges like Binance, indicates potential for further liquidations if Bitcoin experiences another downturn. The high leverage environment increases the risk of a significant market correction.