Market Analysis

Earlier Cryptocurrency Market Crash Explained – Excessive Leverage.

In line with an official report published by Glassnode, the late-February cryptocurrency market correction might have purged excessive leverage from the markets.

Earlier on 1st March, Glassnode revealed a report analyzing the recent cryptocurrency market crash – that was solely the 2nd significant cryptocurrency correction since the markets pushed into new record highs earlier in last year.

Glassnode outlined the crash peaked with a 25% fall from the native top of $58.3k to $43.3k. As such, the shift was weaker than earlier from January’s dip that saw a roughly 30% retracement from $42k to around $30k.

Glassnode explained that these pullbacks are positive for the cryptocurrency markets overall, attributing the newest correction to liquidated leveraged positions held by several speculators:

“Significant market corrections are positive events therein they flush out speculation, leverage, weak hands, as well as test holder conviction.”

The report further added that several key market indicators were reset as Bitcoin [BTC] prices found fresh support, along with futures open interest, futures funding rates, and therefore the price premium for Grayscale’s investment products.

Futures open interest, which is among the total number of outstanding contracts that haven’t been settled, dropped almost $4 Bln or 22% from its highest levels of $18.4 Bln. Glassnode also commented & revealed perpetual futures funding rates have also reset on the brink of zero, which might indicate that traders aren’t willing to enter short positions, explaining:

“Earlier combinations of decreasing open interest & a reset of funding rates have indicated a flush in speculative trading has occurred.”

Moreover, the report did add that open interest remains to hover roughly $2.5 Bln over its earlier peak of $3.9 Bln on 21st Feb. – meaning there’s still significant leverage within the market.

Glassnode also added that shares in Grayscale’s Bitcoin Trust are trading at a reduction compared to identify market prices for the primary time ever, with investors paying an almost 4% discount to access exposure to Bitcoin [BTC] via the Grayscale’s trust.

It explained that competing products like Canada’s Purpose ETF could diminish Grayscale’s premium as more institutional products enter the market and shut arbitrage opportunities.

At the reporting time, Bitcoin [BTC] prices were up 5.52% over the past 24 hours, with BTC presently changing hands for $49k.

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