Market Dynamics: Leverage and Derivatives Usage
The cryptocurrency market is currently experiencing a period of extreme leverage, which is leading to liquidation levels significantly higher than in previous cycles. New data from Glassnode and Fasanara indicates a rapid increase in forced position closures, suggesting a market structure that is more sophisticated but also more fragile.
Extreme leverage accelerates crypto liquidations as derivatives usage grows across increasingly fragile markets.
“Early Black Friday” crash triggered massive hourly liquidations, sharply reducing Bitcoin open interest.
Futures activity hits records while spot volumes rise, showing disciplined accumulation during volatility.
Accelerating Liquidations Amidst Increased Derivatives Reliance
Comparisons between market cycles reveal a sharp increase in daily liquidation figures. In the prior cycle, average liquidations were around $28 million for long positions and $15 million for short positions. In the current cycle, these amounts have risen to $68 million for longs and $45 million for shorts.
Analysts point to the wider adoption of aggressive derivative strategies, particularly by institutional and advanced traders aiming to generate returns through high leverage. While this practice offers the potential for quick profits, it also introduces fragility when prices experience sharp movements.
The “Early Black Friday” Event as a Turning Point
October 10 marked a significant moment in the current market cycle. During an abrupt price drop, often referred to as the “Early Black Friday” crash, Bitcoin's price fell from $121,000 to $102,000 within a matter of minutes. This rapid decline triggered a wave of liquidations exceeding $640 million per hour on long positions.
In less than 12 hours, open interest decreased by 22%, falling from $49.5 billion to $38.8 billion. This event stands as one of the most severe deleveraging episodes in Bitcoin's history.
Open Interest Reaches New All-Time Highs
Despite the recent volatility, the futures markets continue to expand. Open interest has climbed to a record $67.9 billion, accompanied by substantial trading activity.
In mid-October, daily futures volume reached $68.9 billion, with perpetual contracts comprising over 90% of this activity. This trend highlights an increasing preference within the market for derivatives as a means of gaining exposure without directly holding spot Bitcoin.
Spot Market Behavior Diverges From Prior Cycles
The Bitcoin spot market has also undergone a notable shift. Current daily volumes are ranging between $8 billion and $22 billion, approximately double the average seen in the previous cycle.
During the sell-off in October, hourly spot volume reached $7.3 billion, more than triple recent highs. Rather than retreating, buyers seized the opportunity presented by the price drop to accumulate assets, suggesting a market that is now exhibiting more discipline and less panic selling.
Spot ETFs Reshape Price Discovery
The introduction of U.S. Bitcoin spot ETFs in early 2024 has altered the price discovery process. Glassnode observes that price setting has increasingly migrated toward spot markets, while leverage has become more concentrated in futures.
Bitcoin's market share reflects this shift: its dominance has increased from 38.7% at the end of 2022 to 58.3% currently. Monthly capital inflows into Bitcoin range from $40 billion to $190 billion, elevating its realized market capitalization to $1.1 trillion.
Bitcoin's Strengthening Role as a Global Settlement Network
Another significant finding highlights Bitcoin's expanding function as financial infrastructure. Over the past 90 days, the network has processed $6.9 trillion in transfers, surpassing the combined throughput of Visa and Mastercard during the same period.
This trend positions Bitcoin as more than just a speculative asset; it is now operating as a global settlement system for high-value transactions.