Last week was an eventful seven-day period for Bitcoin price movement and the cryptocurrency market in general. From the leading cryptocurrency achieving a six-figure valuation to “flash crashing” below $90,000, investors have been experiencing a variety of emotions over the past week.
Unsurprisingly, Bitcoin’s “flash crash” has been a major source of commentary in the past day, with many pundits offering insights into how the phenomenon will impact Bitcoin’s trajectory. Here are some on-chain lessons learned from the sudden price drop, according to the head of research at CryptoQuant.
What happened in the Bitcoin futures market?
In a new post on Platform X, CryptoQuant’s head of research, Julio Moreno, said Weighed in On the flash “collapse” of Bitcoin’s price to around $88,800 on Thursday, December 5. In context, a flash crash refers to a scenario in which the price of an asset drops suddenly but recovers almost immediately.
According to Moreno, the recent collapse of the leading cryptocurrency was caused by a series of sell-offs and deleveraging in the Bitcoin futures market. A cryptocurrency expert revealed that open interest diminished as the price of Bitcoin fell on Thursday, indicating the liquidation of a large portion of leveraged long positions in the futures market.
Furthermore, funding rates, which refer to the periodic payments exchanged between traders in the perpetual futures market, saw a sharp decline when the price of Bitcoin fell. When financing rates turn negative, it indicates that the market has become bearish, with short traders willing to pay a premium.
Moreno noted that lower financing rates indicate that perpetual futures prices are falling faster than spot prices. It is worth noting that when funding rates are negative during a price collapse, it may indicate that traders are anticipating further downward pressure in the short term.
Source: JJCMoreno/X
One on-chain observation that emerged from the position of Head of Research at CryptoQuant is that spot demand remains strong despite weak futures market dynamics. This is based on the Coinbase Premium metric, which tracks the difference in price on Coinbase (the spot exchange) and other exchanges (usually dominated by futures). According to Moreno, the premium increased stronger in positive territory, reflecting strong buying interest among US investors.
Bitcoin price at a glance
As of this writing, Bitcoin’s price is just under $100,500, reflecting a 2% increase over the past 24 hours. According to data from CoinGecko, the leading cryptocurrency now has a market cap of $2 trillion.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
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