The past week has been an eventful seven-day period for Bitcoin’s price action and the overall cryptocurrency market. From the flagship cryptocurrency reaching a six-figure valuation to a “flash crash” to below $90,000, investors have experienced a variety of emotions over the past week.
Unsurprisingly, Bitcoin’s “flash crash” was a major source of commentary last day, with several experts offering insights on how the phenomenon could impact Bitcoin’s trajectory. According to CryptoQuant’s research manager, below are some of the lessons learned from the sudden drop in prices in the supply chain.
What happened in the BTC futures market?
In a modern post on the X platform, the head of CryptoQuant research, Julio Moreno weighed regarding Bitcoin’s lightning price “crash” to around $88,800 on Thursday, December 5. In the context of a flash crash, it refers to a scenario where the price of an asset falls sharply but then recovers almost immediately.
According to Moreno, the latest flash crash experienced by the leading cryptocurrency was triggered by a cascade of sell-offs and deleveraging in the BTC futures market. A cryptocurrency expert revealed that the number of open positions fell as the price of Bitcoin fell on Thursday, signaling the liquidation of much of the leveraged long positions in the futures market.
Moreover, funding rates, which refer to the periodic payments exchanged between investors in the perpetual futures market, have seen a edged decline as Bitcoin’s price has fallen. When funding rates turn negative, it suggests that the market is becoming bearish and tiny traders are willing to pay a premium.
Moreno noted that falling funding rates signal that perpetual futures prices are falling faster than spot prices. It’s worth noting that when funding rates turn negative during a price collapse, it can signal that investors expect further downward pressure in the tiny term.
Source: JJCMoreno/X
The on-chain observation that stood out from CryptoQuant’s head of research is that spot market demand remains sturdy despite frail futures market dynamics. This is based on the Coinbase Premium metric, which tracks the price difference on Coinbase (spot exchange) and other exchanges (usually dominated by futures). According to Moreno, the premium has moved into positive territory, reflecting sturdy buying interest among U.S. investors.
Bitcoin price at a glance
At the time of writing, BTC is trading just below the $100,500 level, reflecting a 2% gain over the last 24 hours. According to CoinGecko data, the leading cryptocurrency currently boasts a market capitalization of approximately $2 trillion.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
