The Bitcoin (BTC) price experienced sharp corrections at the beginning of each month in Q3 2024. The first seven days of July and August saw declines of 12.56% and 15.94%, respectively.
Bitcoin Market Cap 1-day chart. Source: Trading View
A similar trend continued in September, but it is important to note that Bitcoin also recovered quickly and formed lower highs (LH) over the next few weeks.
Bitcoin OI Down 12% in One Week
Bitcoin open interest (OI) fell 12% from $34.7 billion last week to $30 billion, which is a net gain given the current market conditions.
The rising OI when the price moves sideways after the flash crash indicates that more short positions are being opened. The negative funding ratio for several days since August 5th confirms the bearish bias.
Therefore, the decline in OI last week suggests that short-term leverage traders are getting closer to exiting until a clearer opportunity arises.
BTC price, funding rate, open interest and liquidation chart. Source: Velodata
Liquidations have also decreased significantly since early August. After Bitcoin crashed to $49,000, $1 billion was liquidated, and since then liquidations have remained between $150 million and $200 million or less. The exception was on August 27, when over $300 million was liquidated, the second largest liquidation event that month, after August 5.
Overall, a decline in liquidations means that price action is forming a floor and leveraged positions are being pulled out of the market.
Downtrend liquidation downtrend, $61,000 potential open
The recent Bitcoin drop below $56,000 has affected several liquidation clusters, which were also discovered in early August.
As you can see from the liquidation heatmap, the recent drop in BTC has resulted in a significant amount of liquidated leveraged positions being wiped out, worth over $455 million.
Liquidation and liquidation leverage differ in that liquidation is a permanent loss, while liquidation leverage represents the value of the position. For example, a $1 million liquidation may represent a $10 million position value due to leveraged trading.
Bitcoin Liquidation Heatmap Chart. Source: Coinglass
With the current downside liquidity depleted to $49,000, the next concentrated liquidation position is around $61,000, or over $500 billion. In other words, the possibility of a short-term rebound is growing.
Independent trader CrediBull Crypto predicted a similar outcome after BTC pulled out of its recent liquidity wick on August 15. In a post by X, the trader noted:
Now that the downside target has been achieved, hopefully this means we are ready for a rescue rally. Good rating for OI, but no signs of buyers stepping in yet.
Bitcoin price chart shows bullish divergence
From a technical perspective, Bitcoin’s price action was not bullish after the correction. However, conditions for a recovery were still in place as several bullish signals were observed.
BTC/USDT on 4-hour chart. Source: Trading View
First, the liquidity surge from $55,700 has been tested since August 15th. Therefore, if the price does not recover immediately, the next demand zone between $54,500 and $55,500 will be the next major support zone.
Second, a bullish divergence has been observed between the price and the Relative Strength Index (RSI). While BTC has made lower lows, the RSI is showing lower highs, indicating a reversal is expected.
The immediate upside resistance levels still lie at $59,914 and $61,144, which would be key targets if BTC enters a relief rally.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.