As Bitcoin wrapped up the final week of November, there was a noticeable decline in Open Interest. This shift indicates a decrease in the recent enthusiasm surrounding the leading cryptocurrency, offering potential insights into market demand.
An analysis by CryptoQuant recently drew parallels between Bitcoin’s Open Interest, interest in leverage, and liquidation activities. The peak in Open Interest during a period of exuberant price surges signified an influx of long positions.
Are Bitcoin leveraged long positions facing a reckoning?
This surge in long positions left Bitcoin vulnerable to liquidations, which ultimately led to the price retracement observed in the last week of November.
Subsequently, Bitcoin’s long liquidations hit a peak of $117.88 million last Monday as the price dropped below $93,000. This marked the second-highest level of liquidations for the month of November.
In the following week, Open Interest witnessed a decline. For instance, the cryptocurrency had an Open Interest of $60.17 billion on November 30, a substantial decrease from the $64.03 billion recorded on November 22.
Despite the retreat, the level of Open Interest remained relatively high.
Liquidations also saw a significant decrease. The prior rally that stirred much excitement among derivative traders to open leveraged long positions may have contributed to the surge in liquidations at the onset of last week’s pullback.
Furthermore, the bearish turn of events and liquidations coincided with a notable drop in the estimated leverage ratio.
Is Bitcoin experiencing a liquidity drain?
The drop in Bitcoin’s Open Interest had repercussions on its price trends. Bitcoin retreated from its all-time high of $99,800 to a low of $90,742 last week but has since rebounded to $96,532 at the time of writing.
Despite the modest recovery during the week, signs of demand persisted in the spot market. Notably, Bitcoin ETFs recorded over $320 million in trading volume over the past 24 hours.
However, the momentum appeared weaker compared to the third week of November, possibly indicating a gradual loss of interest in Bitcoin.
One potential reason for the waning momentum could be attributed to the diminishing Bitcoin dominance, which has been steadily dropping since the beginning of 2024.
After hitting a 12-month high of 61.53% on November 21, Bitcoin’s dominance has since receded to 47%.
The significant decline in Bitcoin dominance observed last week marked the most substantial retracement in liquidity share experienced by Bitcoin this year, signaling a potential shift towards alternative cryptocurrencies.
Consequently, with lower liquidity flowing into Bitcoin last week, there are suggestions that investors who have made substantial gains from Bitcoin may be diversifying their portfolios into altcoins.