Bitcoin Perpetual Open Interest Suggests Short Squeeze Led To Crash

It was an awful week for Bitcoin. After trending below $30,000 and then plummeting to around $17,000, the market lost its grounding. Market had begun to turn green with the beginning of the new week. Bitcoin is struggling to stay above $20,000 and the question remains, what caused it?

One Short Squeeze

In the last few weeks, Bitcoin open interest has seen a rise in perps. This was true even after the crash of the bitcoin market and its subsequent recovery. But, there are signs that the market crash and subsequent recovery will be short-lived because of open interest.

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The open interest for bitcoin perps reached a record high of 335,000 BTC on Wednesday after weeks of volatile movements. At this point, bitcoin was below $21,000 The open interest in perps fell quickly as bitcoin’s price began to recover. Such movements usually indicate a brief squeeze. The first crash occurred during the weekend.

Bitcoin open interest

The open interest in the subject remains high. Source: Arcane Research| Source: Arcane Research

This was also true over the weekend. After the persistent movement of the price dropping to around $17,000, perps’ open interest had risen to 325,000 BTC. A further decline in open interest was recorded after the BTC price recovered but slower.

Bitcoin Trading at a Discount

Bitcoin perps trade at a discount when compared with spot prices. It is not surprising that bitcoin funding rates have maintained neutral or below neutral levels even during the collapse and massive sell-offs. Aside from the fact that there have been no significant developments in the bitcoin perps since the crash, and the eventual recovery of the currency,

Funding rates

Rates of funding below neutral Source: Arcane Research| Source: Arcane Research

It is interesting to note that the funding rates remain below neutral and the price for Bitcoin has fallen above $20,000. Deribit has seen the biggest impact on funding rates. It is believed to have a close relationship with Three Arrows Capital (3AC), so the drop in funding rates has triggered fears of insolvency and speculations about the 3AC crash.

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It’s important to remember that Deribit assures the public that the company is financially strong, even though 3AC loans were forfeited. As the market has begun to move on from last week’s crash, the funding rates have begun to stabilize, although they remain slightly below neutral.

Bitcoin price chart from

BTC drops to the mid-$20,000s| Source: BTCUSD on
Featured Image from CNN International. Charts from Arcane Research and

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