Bitcoin Experiences Price Drop Amid 'Overheated' Market - Potential Correction Looms
Summary:
Bitcoin (BTC) witnessed a 4.5% decrease in its trading value over the last day, due to what analytics firm IntoTheBlock calls an "overheated" crypto sphere. This caused a 4.1% decrease in the global crypto market capitalization and saw a drop in the prices of Ethereum (ETH), BNB, XRP, Cardano, and Dogecoin. IntoTheBlock's analysis warns of a possibly significant market correction due to growing leverage and high open interest rates. Despite current turmoil, 86% of Bitcoin investors are still profiting at current Bitcoin prices.
As of March 15, Bitcoin (BTC) showcases a trading value of $68,319, reflecting a 4.5% dip within a day, nota bene from an evidence provided by IntoTheBlock, an on-chain analytics firm, alluding to an "overheated" climate in the crypto arena. Illustrated by Cointelegraph Markets Pro and TradingView, BTC's price has seen a downturn from its recent peak of $73,835 on March 14 to a new weekly low of $65,565 on March 15, marking a 9% plunge. In conjunction with the slipping Bitcoin prices, a ripple effect has been induced in the market causing an overall sell-off. This has brought about a 4.1% drop in the global crypto market cap, settling at $2.59 trillion as per CoinMarketCap data.
Ether (ETH), the second largest cryptocurrency by market cap, too has slid by 5%, to $3,708, over the last day. Other major cryptocurrencies have followed suit, with BNB, XRP, Cardano, and Dogecoin experiencing a dip of 2.3%, 7.3%, 5.8%, and 8% respectively in the same timeframe. Solana (SOL), however, recorded a gain of 8%, standing alone among the top ten cryptocurrencies.
Earlier, Cointelegraph had cautioned about a potential downward correction in BTC prices due to "overheated" conditions, a sentiment reiterated by the Twitter user TOBTC. Market intelligence firm IntoTheBlock's data aligns with this prediction, pointing to the rising leverage in the crypto sector, which suggests a potential market correction.
In its weekly On-chain Insights newsletter, IntoTheBlock revealed that the fee Bitcoin perpetual swap buyers pay those on the short end is currently at its highest since October 2021. Analysts from IntoTheBlock highlighted that Bitcoin’s funding rates on Binance and Bybit escalated to 0.06% and 0.09% respectively.
Further data from Coinglass reports that Bitcoin futures open interest (OI) reached its record peak of $35.55 billion on March 15 on all exchanges. The analysts at IntoTheBlock caution when open interest becomes exceedingly high, presenting warning signs of a generally bullish position in derivatives posing a risk for the market.
The high leverage situations are not confined to centralized exchanges, but it is also conspicuous in the DeFi networks where borrowings are on the rise. The chart illustrates that the total debt on all DeFi protocols has doubled in 2024, escalating from around $2 billion in early January to around $4.15 billion on March 14.
IntoTheBlock also highlighted the y-o-y increase of 2.14 in the aggregate amount of debt issued through Aave v3 on Ethereum and reported an increase in the amount of wrapped Bitcoin (WBTC) supplied to Aave by over 10,000 BTC (~$700M) so far in 2024. This implies that the rates in DeFi have risen with the growing “demand for leverage.” The firm warns that the DeFi ecosystem may face a price correction in the near future due to this excessive risk accumulation.
As IntoTheBlock reports, the crypto market is expected to witness a significant correction as leveraged positions are paid back or liquidated. However, currently, Bitcoin holders are still reaping profits. BTC reached several all-time highs in March, primarily triggered by the success of the spot Bitcoin ETFs in the U.S. According to IntoTheBlock's report, the average 90-day return for the top 20 crypto assets is at 103%, indicating most traders have profited from their crypto investments.
A majority of the investors, as pointed by data from IntoTheBlock, about 86% of all Bitcoin holders are sitting in profit at current prices. This increases the probability of a continued sell-off in the short term as investors continue to take profits.
Published At
3/15/2024 8:48:25 PM
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