Crypto traders who used options and futures to gain exposure to Bitcoin (BTC) have suffered a massive loss of $1 billion as the cryptocurrency experienced a sharp 14% drop from its new all-time high of $69,200 on March 5.
In a post on March 6, Santiment, an on-chain analytics provider, revealed that the total open interest (OI) on exchanges for Bitcoin, Ethereum (ETH), and Solana (SOL) significantly decreased after Bitcoin reached its all-time high.
Within a few hours, Bitcoin’s open interest fell by $1.46 billion (-12%), Ether’s dropped by $967 million (-15%), and Solana’s tumbled by $424 million (-20%).
The decline in open interest coincided with the drop in Bitcoin’s price. On March 5, Bitcoin briefly reached a new all-time high just above $69,200, slightly higher than its previous peak in November 2021.
Santiment stated that most of the speculation on price came from traders opening long positions in anticipation of Bitcoin surpassing its all-time high and maintaining a price above $70,000. A smaller portion of the losses came from short positions being liquidated as Bitcoin briefly touched its new all-time high.
Open interest refers to the total number of open positions that traders have taken on a derivatives contract. When traders open new positions, it increases open interest, and when they close existing positions, it decreases.
In recent weeks, open interest has reached record levels as traders increased their bets on Bitcoin’s price movement towards new highs.
Although the sudden drop in Bitcoin’s price may have startled the market, experts reassured traders that derivatives flush-outs are a normal part of price fluctuations.
One crypto trader, known as “Daan Crypto Trades,” informed his 363,000 followers that “After temporarily reaching the all-time highs, we saw a sharp decline which led to the liquidation of many long positions,” and added that “About ~$3B in Open Interest was lost in this correction.”
According to data from CoinGlass, approximately 312,500 traders were liquidated, resulting in total liquidations of $1.13 billion within the past 24 hours.
Currently, Bitcoin is being traded at $63,600, representing an 8% decrease from its new all-time high.
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