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- Crypto analyst Adam Cochran highlighted that long positions on exchanges caused the recent Bitcoin price drop.
- Cochran explained that open interests on exchanges were too high, and most traders were leveraged on long positions.
- The analyst said the long position liquidation was the market balancing itself, as perpetual markets are designed to be balanced.
Following the unexpected slump in Bitcoin’s price yesterday, Adam Cochran – a fintech executive and renowned crypto Twitter analyst – took to X (formerly Twitter) to explain what caused the sudden drop.
In the series of tweets, Cochran highlighted that the recent decline was caused by the soar in open interest (OI) across exchanges. According to the analyst, bullish expectations for the largest cryptocurrency by market cap were high, and thus, long positions on exchanges were significantly elevated.
In particular, the analyst noted this trend on the cryptocurrency trading platform, ByBit. Cochran remarked, “ByBit degens, who, while sitting at nearly the same OI as Binance, were so leveraged long they were paying 40% annual funding rates.”
While noting that traders taking one side of the trade is not bad in spots, Cochran explained that the same situation wouldn’t work in perpetual markets. “In perps, markets are designed to keep balanced since one person’s short is another’s long. So in any market where everyone feels the winning trade is obvious, a market *must* punish that side.”
However, despite the prevailing gloom that followed yesterday’s crash, Cochran stated that some recovery might be in sight. “Usually the harder the reset, the more momentum the trend can retake, and this wouldn’t be the first time that we’ve had a long green trend, 1 red weekly bloodbath and then highly broke up.”
BTC/USD Chart | Source: Adam Cochran
Concluding, Cochran cautioned that as the market accelerates, so does volatility. The analyst continued by saying that given the dynamics in the current market, trading strategies that worked in the bear market won’t work at present. “Be careful with leverage and bias towards spot while watching for hubris of other traders to get punished.”
At present, Bitcoin is trading at $41,778, following a slight recovery from the lows recorded yesterday, according to CoinMarketCap Data. The token is down 0.99% in the past 24 hours, but holders are up 0.69% on the weekly chart.
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