Billions of dollars in leverage was wiped from the crypto market as Bitcoin plunged 14% in a few hours after briefly notching a new all-time high.

Crypto traders using options and futures to gain exposure to Bitcoin BTC $66,220 are out of pocket a staggering $1 billion after the cryptocurrency crashed more than 14% from its new all-time high of $69,200 on March 5. 

In a March 6 post to X, on-chain analytics provider Santiment wrote that the total open interest (OI) on exchanges for Bitcoin, Ethereum (ETH), and Solana (SOL) declined significantly after the BTC all-time high the previous day.

Bitcoin open interest fell $1.46 billion (-12%) over the course of a few hours, while Ether’s ETH $3,776 dropped $967 million (-15%), and Solana’s SOL $131 tumbled $424 million (-20%).

The price of Bitcoin briefly notched a new all-time high just above $69,200 on March 5, only slightly higher than its previous peak of $69,044 in November 2021.

Santiment said that the vast majority of speculation on price came from traders opening long positions in anticipation of Bitcoin breaking through a new all-time high and holding above a price of $70,000.

Meanwhile, a smaller portion of the flush came from short positions being liquidated as Bitcoin briefly touched a new all-time high.

“In a way, we can view this open interest plummet as a sign that 'speculative excess' has been temporarily removed from the markets.”

Open interest refers to the total amount of open positions that traders have taken on a derivatives contract. When a trader opens a new position on a futures or options contract, it increases open interest. When a trader closes an existing position, it decreases.

Over the last few weeks, open interest has surged to record levels as traders increased their bets on Bitcoin’s price action as it headed toward new highs.

While Bitcoin’s sudden downward price action may have spooked the market, many pundits took to X to explain that derivatives flush-outs are a normal part of price movements.

Crypto trader 'Daan Crypto Trades' told his 363,000 X followers, "After temporarily sweeping the all-time highs, we saw a sharp decline which saw a lot of longs being flushed out," before adding "About ~$3B in Open Interest was lost in this correction."

According to data from Coinglass, around 312,500 traders were liquidated with the total liquidations coming at $1.13 billion over the past 24 hours.Bitcoin is currently changing hands for $63,600, down 8% from its new all-time high yesterday.

Source: Cointelegraph.