The past week has been an eventful seven-day span for the Bitcoin price action and the general cryptocurrency market. From the flagship cryptocurrency achieving a six-figure valuation to “flash crashing” to under $90,000, investors have gone through various emotions over the past week.

Unsurprisingly, the Bitcoin “flash crash” has been a major source of commentary in the past day, with several pundits providing insights as to how this phenomenon might affect the Bitcoin trajectory. Below are some of the on-chain lessons learned from the sudden price plunge, according to CryptoQuant’s head of research.

What Happened In The BTC Futures Market?

In a new post on the X platform, CryptoQuant’s head of research Julio Moreno weighed in on the flash “crash” of the Bitcoin price to around $88,800 on Thursday, December 5. For context, a flash crash refers to a scenario when the price of an asset abruptly declines but recovers almost immediately.

According to Moreno, the latest flash crash experienced by the premier cryptocurrency was triggered by a sell-off cascade and deleveraging in the BTC futures market. The crypto expert revealed that open interest dwindled as the price of Bitcoin fell on Thursday, signaling the liquidation of a significant portion of the leveraged long positions in the futures market.

Furthermore, the funding rates, which refer to the periodic payments exchanged between traders in the perpetual futures market, experienced a sharp decline when the Bitcoin price dropped. When the funding rates turn negative, it suggests that the market is becoming bearish, with short traders willing to pay a premium.

Moreno noted that the declining funding rates signaled that the prices of perpetual futures are falling faster than spot prices. It is worth noting that when the funding rates are in the negative during a price crash, it could signal that traders anticipate further bearish pressure in the short term.

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Author: Opeyemi Sule