Speculative Trades Flushed Out as Bitcoin, Ethereum, Solana’s Open Interest Drops

Bitcoin reached a fresh all-time peak, surpassing $69,300 this week, only to swiftly correct by over 10%. Prior to this event, the open interest in Bitcoin futures and perpetual pairs surged to unprecedented levels.

Despite Bitcoin’s overall gain of almost 55% in the past month, the sudden drop in its value has left investors uncertain about its future trajectory.

However, Santiment suggests that ‘speculative excess’ has been temporarily removed from the markets.

Open Interest Plummet Across Exchanges

After reaching an all-time high earlier on Tuesday, the total open interest on exchanges for Bitcoin, Ethereum, and Solana has witnessed a significant decline.

According to Santiment’s latest analysis, the decrease in open interest, a measure of unsettled derivative contracts such as futures and options, reflects a notable shift in market sentiment.

Bitcoin’s open interest dropped by 12%, Ethereum’s by 15%, and Solana’s by 20%. This reduction can be attributed to various factors, including the liquidation of over-speculative trades.

Many traders who had long positions in anticipation of Bitcoin’s all-time high closed their positions before prices retraced, while others longing for a $70K Bitcoin faced liquidation as prices dipped. Similarly, traders shorting Bitcoin in anticipation of the all-time high not materializing yet saw their positions liquidated during today’s short-lived peak.

This decline in open interest suggests a temporary removal of speculative excess from the markets.

“”In a way, we can view this open interest plummet as a sign that ‘speculative excess’ has been temporarily removed from the markets. Assuming funding rates can even out, prices can theoretically fluctuate under less influence of futures and options positions, and more on a true supply and demand market valuation from traders, investors, and hodlers.”

Historically Beneficial?

As funding rates stabilize, Santiment noted that the prices may fluctuate based more on genuine supply and demand dynamics rather than the influence of futures and options positions.

Although the long vs. short ratio remains high despite recent retracement, the drop in open interest could precede a leveling out of funding rates, potentially leading to a swift rebound across crypto assets.

The analytics platform also said that “continued decline is historically beneficial.”