February crypto crash purged leverage trades: Glassnode

Glassnode said that the February cryptocurrency crash might have eliminated excessive leverage from the market

Crypto analytics provider Glassnode believes that the late February Bitcoin crash was healthy for the market as it flushed out excessive leverage. The leading cryptocurrency’s price plunged from an all-time high of $58,000 to trade below $43,000 on cryptocurrency exchanges within a few days.

According to Glassnode’s weekly on-chain report, the recent crash was necessary for the market. “Significant market corrections are positive events in that they flush out speculation, leverage, weak hands and test holder conviction“, Glassnode wrote.

The analytics company said that the recent market crash was the second major correction since the cryptocurrency hit $20,000. February’s crash peaked with a 25% fall from the all-time high of $58,300 to $43,343. Hence, the crash was weaker than January’s decline, which saw the leading cryptocurrency lose 30% of its value (from $42,000 to less than $30,000).

The analysts believe these corrections are positive for the crypto markets overall. The latest pullback was due to liquidated leveraged positions held by risky speculators. Glassnode added that numerous key market indicators were reset as Bitcoin prices established fresh support. The correction reset affected futures open interest, futures funding rates and the Grayscale GBTC product.

The futures open interest dipped by 21.7%, losing $4 billion from a peak of $18.4 Billion. The perpetual futures funding rates were also affected as they reset close to zero. With the decline in speculative trading, Glassnode analysts believe there is a higher chance that spot market dynamics would dominate again.

However, despite the decline in speculative trading, Glassnode notes that open interest is still $2.5 billion above its previous peak, therefore indicating that there is still notable leverage within the cryptocurrency market.

Grayscale’s investment vehicles were affected by the recent market correction. “The Grayscale ‘premium’ has, for the first time, become a Grayscale ‘discount,’ hitting a low of -3.77%”, the report said. Glassnode suggests that the introduction of competitor ETF style products like Canada’s Purpose ETF could affect Grayscale’s performance.

As more institutional Bitcoin products enter the market, Grayscale’s products might not command heavy premiums as they are currently enjoying. This is because institutional investors would have more options to invest in Bitcoin and other cryptocurrencies.

Bitcoin is slowly recovering from last month’s crash, and the leading cryptocurrency is trading close to the $49,000 mark at the time of this report.