Bitcoin’s (BTC) price has witnessed a sharp correction at the start of each month in Q3 2024. The first seven days of July and August saw a drawdown of 12.56% and 15.94%, respectively.
Bitcoin marketcap 1-day chart. Source: Trading View
September is following a similar tone, but it is important to note that Bitcoin also recovered swiftly to form lower highs (LH) in the following weeks.
Bitcoin OI drops 12% in one week
Bitcoin open interest (OI) has dropped 12% from $34.7 billion to $30 billion over the past week, which is a net positive considering current market conditions.
Rising OI when prices move sideways after a flash crash indicates that more short positions are being opened. Multiple days of negative funding rates after Aug. 5 confirmed the bearish bias.
Hence, the drop in OI over the past week suggests that short-leverage traders could be nearing the exit until a clearer opportunity arises.
BTC price, funding rate, open interest and liquidations chart. Source: Velodata
Moreover, liquidations have also significantly decreased since the beginning of August. Bitcoin’s crash to $49,000 then liquidated $1 billion, after which liquidations have remained close to $150-$200 million or under. The exception is on Aug. 27 with $300+ million in liquidations, which was the second largest liquidation event in the month after Aug. 5.
Overall, decreasing liquidation means that price action is possibly forming a bottom, with leveraged positions exiting the market.
Downside liquidation drop, opening possibility for $61K
Now, Bitcoin’s recent drop under $56,000 has reached several liquidation clusters, which were also tapped at the beginning of August.
As observed in the liquidation heatmap, BTC’s latest drop cleared out a significant amount of liquidation leverage positions over $455 million.
Liquidations and liquidation leverage are different in the sense that liquidations are permanent losses, while liquidation leverage represents the value of positions. For example, due to leveraged trading, $1 million in liquidations might represent $10 million in positional value.
Bitcoin liquidation heatmap chart. Source: Coinglass
With downside liquidity currently dried up until $49,000, the next concentrated liquidation positions are around $61,000 i.e. worth over $500 billion. In other words, a rebound is becoming increasingly likely in the short term.
CrediBull Crypto, an independent trader, expected a similar outcome after BTC took out recent liquidity wicks from Aug. 15. In an X post, the trader mentioned,
We have now hit my downside target so hopefully this just means we are now ready for that relief rally sooner rather than later. Nice wipe on OI here but no immediate signs of buyers stepping in just yet.
Bitcoin price chart shows bullish divergence
From a technical perspective, Bitcoin’s price action did not exude strength after the correction. However, the conditions remained primed for a recovery as a couple of bullish signals were observed.
BTC/USDT on the 4-hour chart. Source: Trading View
Firstly, a liquidity sweep at $55,700 has been tested from Aug. 15. So, if the price fails to make an instant recovery, the nexy demand zone between $54,500 and $55,500 should be the next big support area.
Secondly, a bullish divergence between the price and the Relative Strength Index (RSI) has been observed. While BTC has made lower lows, RSI is indicating lower highs, which means a reversal could be on the cards.
Immediate overhead resistance remains at $59,914 and $61,144, which will be primary targets if BTC engages in a relief rally.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.