FameEX Hot Topics | Bitcoin Liquidity Zones Cleared, Open Interest Uptick Suggests Recovery Ahead

The sudden sell-off of Bitcoin, which came after reaching an all-time high of $124,474, caught many traders off guard and led to a sharp increase in long liquidations. Initially, this decline seemed like a routine correction, as profit-taking at new highs and short openings are common in such market conditions. However, the drop of 6.72% below $115,000 surprised many, and analysts started to predict further downside, with some suggesting Bitcoin might dip to $110,000 or even lower.

Andre Dragosch, Bitwise’s European Head of Research, acknowledged the recent profit-taking by short-term holders but noted that this activity has diminished in size over time. Despite this, the correction below $115,000 was deeper than expected, prompting some analysts to suggest that a further decline could be on the horizon. The market’s reaction to this deeper-than-anticipated pullback has led to increased uncertainty about Bitcoin’s short-term direction.

Shubh Varma, co-founder and CEO of Hyblock, provided insight into the market's behavior during the recent sell-off. He explained that liquidity dynamics heavily influenced Bitcoin’s weekend price action. Leading into the weekend, liquidity accumulated on the downside, creating clear targets for potential liquidation. As the weekend came to an end, the liquidity was “swept,” a typical occurrence in markets with thin trading volumes, where liquidity grabs are more frequent and exacerbate price movements. Varma noted that the liquidity grab exposed the vulnerabilities of Bitcoin’s market structure, especially when institutional demand is absent.

On the supply side, Varma pointed out that large Ethereum unstaking events added more supply to the market. Despite this, demand from digital asset treasuries and institutional investors remained robust, with significant purchases of both Bitcoin and Ethereum throughout the week. This strong institutional demand absorbed the increased supply, helping Bitcoin maintain its upward momentum. However, Varma highlighted that this demand seemed to dry up over the weekend, as Wall Street closed for the weekend, leading to orderbook imbalances and higher slippage, which increased volatility.

Varma remains optimistic about Bitcoin’s prospects despite the correction. He pointed out that significant open interest appeared at the same time as the liquidity sweep, which he believes could act as solid support for the price. Since both long and short positions were established at these levels, and many shorts are now trapped, Varma sees this as a potential catalyst for a price rebound, suggesting Bitcoin may find support and recover from the recent sell-off.

Disclaimer: The information provided in this section is for reference only and does not represent any investment advice or the official views of FameEX.