BTC faces months of open interest recovery following leveraged position liquidations

BTC may have to rebuild up to 30% of its leveraged positions after flushing the liquidity during the latest market downturn. BTC open interest may take months to recover following the market-wide liquidation of leveraged positions.

BTC saw its open interest decrease by 30% after the October 10 market downturn. The deleveraging event, which was the biggest in the history of crypto, shifted market sentiment to the fear zone and shrank inflows, leaving the markets with much lower leverage.

The most recent deleveraging was also extremely rapid and was followed by a second wave of selling, as retail shed some of their positions. BTC open interest held at around $33.83M, though perp DEXs like Hyperliquid lost nearly 50% of their open interest.

Other methods count BTC open interest at around $70M on all markets.

BTC open interest fell sharply after months of accumulation, erasing 30% of positions and deleveraging most markets. | Source: Coinglass

Rebuilding leverage for BTC usually takes three to six months. The current panic is also tied to the notion that BTC conforms to trading cycles, and the bull market may be overdue for a correction.

BTC recoveries also remain fragile, as the coin failed to hold above the $111,000 range. BTC fell back to $107,773, following another round of long liquidations.

BTC saw smaller liquidations

BTC derivative trading is still active, though with smaller daily liquidations. Following the recent market downturn, BTC saw $84.71M in long liquidations. ETH had over $87M in long liquidations after another dip under $3,900.

BTC is still rebuilding liquidity on the downside and on the upside. After the latest downturn, short positions accrued around $111,000, below their previous range of $114,000.

One of the hopes for a market recovery is a short squeeze to a higher range. However, whale selling, retail panic or other factors may sway the market toward long liquidations.

On-chain analysis shows Binance hot wallets are moving BTC to other exchanges, possibly creating selling pressure. Previously, transactions from Binance’s hot wallets have coincided with dramatic price moves for BTC.

BTC buying returns with caution

BTC is trading with caution, as the fear and greed index moved to 34 points. Recent data showed the week after October 10 saw a bias toward selling, based on selling taker volumes.

After October 17, the market switched once again to buying, based on taker volumes. Derivative markets remain slightly in favor of sellers and bearish positions.

BTC traders are now divided on whether the coin has reached its market top. Based on halving cycles and historical trends, the BTC peak was indeed achieved in October, and the expectation is for a bear market to last for months or years.

For others, BTC is trading on a different logic, and four-year cycles are not as meaningful. BTC markets are more dependent on derivative trading and overall liquidity, rather than a connection to new coin production.

Additionally, spot ownership has changed its structure. Following the market peak for BTC, buyers kept holding coins in accumulation wallets. Spot sellers in all wallet cohorts are holding onto their BTC despite the recent market downturn.