Bitcoin’s recent 25% price dip was positive because it flushed out excessive leverage from the market and tested its holders’ conviction while keeping speculators at bay, according to a recent report.
The report, published by on-chain analytics firm Glassnode, analysed the recent cryptocurrency market correction, which saw BTC’s price drop from a new all-time high above $58,000 to about $43,000 before recovering. It concluded these market corrections are positive, even thought the recent dip wasn’t as sharp as the one seen back in January, when bitcoin dropped from $42,000 to $30,000, losing 30% of its value.
The firm’s report suggested the pullback was partly caused by leveraged positions being liquidated. The report reads:
Significant market corrections are positive events in that they flush out speculation, leverage, weak hands, and test holder conviction.
Glassnode’s reports adds that several market indicators were reset as bitcoin’s price fell to a support level. Futures open interest and funding rates, for example, dropped to healthier levels, while the price premium of Grayscale’s Bitcoin Trust (GBTC) went negative.
As Cointelegraph reports, futures open interest, which represents the number of outstanding futures contracts to be settled, dropped by nearly $4 billion from its $18.4 billion peak, while perpetual contracts funding rates dropped to near zero.
This, the report adds, could show a “flush in speculative trading has occurred,” as “previous combinations of decreasing open interest and a reset of funding rates” indicated such a decrease in speculative trading activity.
Products such as North America’s first bitcoin exchange-traded fund (ETF), the Purpose Bitcoin ETF, could have seen the premium Grayscale’s Bitcoin Trust was known for trading at disappear. The product is now trading at a 4% discount to its net asset value.
Glassnode’s co-founder noted on social media that Liquid Bitcoin supply Change has kept on decreasing over the last few weeks, regardless of whether the price went up or down, indicating “the insane amount of hodling and confidence right now.”
Featured image via Pixabay.