Volatility has returned to the Bitcoin market, with the cryptocurrency falling more than 5% since the beginning of the week. The decline is largely attributed to derivative traders and over-leveraged positions. Therefore, this exit can be considered healthy for the markets.
Cryptocurrency markets are again on a downtrend today and while analysts predict the correction, the pullback is seen to be catalyzed by derivative speculators. On December 12, Adam Cochran of Cinneamhain Ventures provided more details on funding rates and open positions, explaining the summary of Bitcoin.
Bitcoin’s open interest was around $12 billion across all exchanges as of December 11. OI is a measure of the notional value of BTC derivatives that have not yet been settled or come to maturity. Cochran pointed out that this level could be the start of increased volatility if skewed, and also noted that it represents approximately 0.1% of the total market cap.
Additionally, it was observed that Binance represents the largest individual part of this OI, and that funding rates were at high levels. Funding rates are periodic payments to or from traders based on the difference between perpetual contract markets and spot prices. However, he mentioned that the problem was with degens paying very high funding rates: An expert said the following:
ByBit degens, while sitting at almost the same OI with Binance, were so leveraged for a long time that they were paying an annual funding rate of 40%. Therefore, in order for a healthy market to continue to rise, there must be liquidation days. Continuous rise without any negativity drags the market too much offsides. There are too many winners and too much advantage.
Moreover, such leverage volatilities in Bitcoin or Ethereum price movement can be detected if they are in the same category with altcoins. Cochran concluded that a burst reversing the trend could occur if there was no sufficient momentum left in leverage volatility. BTC was trading at $41,869 at the time of writing this article. On December 11, in late transactions, it recovered to $40,321 from the intraday low level.
