Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Bitcoin recently experienced a sharp sell-off, catching many traders off-guard and intensifying long liquidations, as profit-taking occurred near its range highs. However, an uptick in open interest and consistent institutional demand hint at a potential recovery, with dip-buyers stepping in after key “liquidity zones were swept” over the weekend.
Market Correction and Profit-Taking
The abrupt correction from Bitcoin’s recent all-time high, which saw it drop 6.72% below $115,000, was initially attributed to routine profit-taking by traders. Andre Dragosch, Bitwise European Head of Research, noted an increase in profit-taking by short-term holders, though he observed these instances have become smaller over time.
Some analysts anticipate further declines, potentially to $110,000 or below, following this deeper-than-expected correction. The sell-off also aligns with traders’ previous reactions to new all-time highs, where profit-taking is a common occurrence.
Weekend Liquidity Dynamics
Over the past week, Bitcoin’s weekend price action was significantly influenced by liquidity dynamics, with visible pools of potential liquidation targets building up on the downside. As the weekend concluded, these liquidity zones were “swept,” a recurring theme in thin weekend markets that are more vulnerable to such grabs.
Simultaneously, supply emerged from sources like large Ethereum (ETH) unstaking events, adding to the available supply. However, during weekdays, demand from Digital Asset Treasuries (DATs) remained strong, with several institutions announcing major Bitcoin (BTC) and ETH purchases last week, often exceeding the available supply and fueling upward moves.
Institutional Demand and Open Interest
The market dynamic shifted over the weekend as traditional Wall Street institutions closed, causing institutional demand to dry up. This left orderflow imbalances exposed, leading to spiked slippage and a bearish flip in both 1% and 2% bid-ask depth, which collectively triggered the cascade that swept the highlighted liquidation zones.
Despite the Monday drop below $115,000, a significant amount of open interest opened up around the same time and price levels where liquidity was swept. This new open interest is anticipated to serve as a strong support level, as both long and short positions were established there, effectively trapping many short traders.
Conclusion
In summary, while Bitcoin experienced a sharp correction driven by profit-taking and weekend liquidity sweeps, the robust institutional demand during weekdays and the strategic build-up of open interest suggest underlying market resilience. These factors indicate that the recent selling pressure may be temporary, paving the way for a potential recovery in the near term.
