After a brief but intense flash crash on December 5, Bitcoin’s price has swiftly recovered above the $100,000 mark. The sudden decline cast a wick down to $90,500, representing a 14% plunge from its all-time high of $104,600.
Bitcoin’s Price Action
Despite the significant drop, Bitcoin has rallied by 4.57% on the daily chart, maintaining a bullish position above each exponential moving average (EMA) level on the four-hour chart. This upward momentum is a testament to the resilience of the market and the continued bullish sentiment surrounding Bitcoin.
Bitcoin Funding Rate Resets After $400 Million Liquidation
The flash crash that occurred within one hour resulted in liquidations crossing $400 million, identified as the largest liquidation event since 2021. However, the major positive takeaway from this event is that Bitcoin’s open interest-weighted funding rate underwent a reset, dropping from 0.09% on December 4 to 0.01% on December 6.
Byzantine General, a Bitcoin futures analyst, pointed out that the funding rate reset and the decrease in aggregated open interest to the $95,000 level indicate a relatively deleveraged futures market compared to a few days back. The trader highlighted:
"If BTC just continues pumping after that liq cascade, that would be insane, and then there’s truly nothing that can stop this train."
Funding Rate and Open Interest
The funding rate is an important metric in the Bitcoin derivatives market, as it reflects the interest rates at which long and short positions are settled. The significant drop in the funding rate from 0.09% to 0.01% indicates a decrease in the demand for borrowing funds to take long positions.
Moreover, the aggregated open interest has decreased to the $95,000 level, indicating a reduction in the number of contracts being held by traders. This decrease in open interest can be seen as a sign that traders are taking profits or reducing their exposure to the market.
Bitcoin Futures Metric Analysis
The Byzantine General’s analysis highlights the importance of monitoring funding rates and open interest when analyzing Bitcoin’s price action. The trader noted:
"This is normal" for BTC, referring to the fact that similar patterns have been observed at previous important milestones for Bitcoin.
A Look Back at Previous Milestones
Charles Edwards, the founder of Capriole Fund, highlighted that a bearish spinning top candlestick pattern was observed when Bitcoin crossed $1,000 and $10,000. This pattern indicates indecisiveness in the market as both buyers and sellers push prices in opposite directions.
Bearish Spinning Top Candle Pattern
The bearish spinning top candle pattern has been observed at previous important milestones for Bitcoin. Edwards noted:
"This is normal" for BTC, emphasizing that similar patterns have been observed at previous milestones.
This bearish spinning top candle pattern can be seen as a sign of indecisiveness in the market, but it also indicates that prices are likely to move upward after this milestone target has been attained.
Fibonacci Extensions and RSI
Based on Fibonacci extensions, the immediate target for Bitcoin remains at $115,000, representing a 15% uptick from the $100,000 level. The relative strength index (RSI) is also coiling under the overbought region, indicating that an aggressive breakout can take prices as high as $124,500.
Conclusion
In conclusion, Bitcoin’s price has swiftly recovered above $100,000 after a flash crash cast a wick down to $90,500. The significant drop in the funding rate and the decrease in aggregated open interest indicate a relatively deleveraged futures market. The bearish spinning top candle pattern observed at previous milestones for Bitcoin suggests that prices are likely to move upward after this milestone target has been attained.
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