The Bitcoin derivatives market is showing clear signs of contraction following the weekend's plunge. The recent price decline has led to massive forced liquidations, with futures open interest falling to its lowest level since the second half of last year.
Market data shows Bitcoin experienced significant volatility in the short term, with a near-double-digit decline from its weekend high. Billions of dollars worth of derivatives positions were liquidated, with liquidations concentrated in short-term leveraged positions.
This price fluctuation has created a price gap in the CME (Chicago Mercantile Exchange) Bitcoin futures market, stemming from a weekend trading hiatus. Because trading is suspended on the CME during weekends, significant spot price fluctuations during this period typically lead to a price gap upon resumption. Market analysts predict this gap could potentially contribute to short-term volatility in the future.
Following the large-scale liquidation, the overall open interest in futures contracts has decreased significantly. This suggests that excessive leverage has been significantly resolved, leading to assessments that in the short term, we may enter a phase of reduced volatility and a re-examination of direction. Some market participants believe that the timing of the recovery will be influenced by the macro environment and overall investor sentiment for risky assets.
The defensive trend is also strengthening in the options market. Demand for positions in short- and medium-term options to hedge against downside risk is increasing, signaling that investors are shifting to strategies to hedge against price declines. This, coupled with the trend of reducing futures positions, suggests that the overall market is entering a conservative phase.
Bitcoin prices are currently moving near the average buying range of major institutional investors, and the market is pointing to the ability to defend the short- to medium-term support level as a key variable that will determine future trends. Some are even predicting that the price range where the CME futures gap formed could serve as a technical retracement point in the future.
