Bitcoin prices dropped to a low just below $57,000 on May 1, decreasing by another 4% on that day. The cryptocurrency has lost 11% of its value since the same time last week.
Market downturns and sudden sell-offs are common in the crypto space, but Glassnode analyst James Check believes the current situation is unique.
In the 2021 bull market, significant deleveraging events driven by derivatives played a major role and have occurred multiple times this year, with the most recent one in mid-April.
However, Check pointed out that these events did not trigger the recent crypto market crash, as shown in a post on May 2.
Derivatives Not The Cause
Check mentioned, “Funding rates have gradually cooled off, indicating a healthy trend. This suggests there wasn’t a major futures margin call recently.”
Funding rates are charges imposed by derivatives exchanges to balance the contract price with the underlying asset price.
The analyst also shared a chart demonstrating a decline in Bitcoin futures Open Interest (OI) over the past year when measured in BTC terms.
He added, “This comparison of OI to market size indicates a relative decrease in leverage.”
Open Interest refers to the number of outstanding crypto derivatives contracts yet to be settled.
Although there were two significant deleveraging events in futures markets before the recent sell-off, Check stated, “It seems that derivatives didn’t play a dominant role in this decline.”
He further mentioned, “Rather than a derivatives-induced sell-off, I believe this is mainly due to weakness in the spot market resulting from short-term selling pressure and lower demand.”
Despite the market downturn, there is approximately $1.3 billion in OI for Bitcoin options expiring on Friday, indicating steady demand for derivatives according to Deribit.
Crypto Markets Decline
Over the past week, the total market capitalization has dropped by over $240 billion, reaching $2.26 trillion on Thursday during Asian trading hours.
The overall market has contracted by 22% since hitting its peak of around $2.9 trillion in 2024.
Technical analyst ‘Rekt Capital’ remained unfazed, stating that the markets are now in a historical re-accumulation phase.
“The more Bitcoin consolidates within the current range between the current price levels and $70,000 post-Halving, the more the cycle will slow down and align with its regular historically-recurring Halving Cycle, with a Bull Market peak expected in mid-September/October 2025,” Rekt Capital tweeted on May 1, 2024.
At the time of writing, BTC was trading at $57,469, while ETH had fallen by 2% to $2,920. Altcoins showed varying trends, with Binance Coin (BNB) and Toncoin (TON) experiencing more significant losses.
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