Bitcoin's (BTC) price has experienced sharp corrections at the start of each month in Q3 2024, with the first seven days of July and August seeing declines of 12.56% and 15.94%, respectively. September appears to be following a similar pattern, although Bitcoin has managed to recover quickly, forming lower highs (LH) in the subsequent weeks.

Bitcoin Open Interest (OI) Drops 12% in One Week

Bitcoin's open interest (OI) has decreased by 12%, dropping from $34.7 billion to $30 billion over the past week. This is considered a net positive given the current market conditions. Rising OI amid sideways price movement after a flash crash often signals an increase in short positions, as was confirmed by multiple days of negative funding rates after August 5, highlighting a bearish sentiment.

The recent drop in OI suggests that short-leverage traders might be reducing their positions until a clearer opportunity presents itself. Additionally, liquidations have significantly decreased since early August; Bitcoin’s fall to $49,000 resulted in $1 billion in liquidations, after which liquidation amounts have generally stayed between $150 million and $200 million. The notable exception was on August 27, which saw liquidations exceed $300 million, marking the second largest event after August 5.

Overall, the decrease in liquidations indicates that the market may be forming a bottom as leveraged positions exit.

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Reduced Downside Liquidation Opens Path to $61K

Recently, Bitcoin's drop below $56,000 reached several liquidation clusters previously tapped in early August. As shown on the liquidation heatmap, the latest decline cleared over $455 million in liquidation leverage positions. It’s important to note the difference between liquidations and liquidation leverage: while liquidations are permanent losses, liquidation leverage reflects the value of the positions. For instance, $1 million in liquidations might represent $10 million in positional value due to leveraged trading.

A liquidity sweep at $55,700, tested since August 15, suggests that if the price does not recover promptly, the next major support lies between $54,500 and $55,500. Moreover, a bullish divergence between price and the Relative Strength Index (RSI) has been noted—Bitcoin has made lower lows while the RSI indicates lower highs, suggesting a potential reversal.

Immediate overhead resistance levels are at $59,914 and $61,144, which could become primary targets if Bitcoin embarks on a relief rally.