For weeks, we have been anticipating October with optimism, given multiple positive factors for the crypto market. Among these is the conclusion of the U.S. Dollar liquidity squeeze in September, which we expect to be followed by increasing liquidity from this month onward. In Monday’s edition of Crypto Crisp, we outlined additional reasons for our bullish outlook on crypto throughout the fourth quarter.

However, we also emphasized the need for some of Bitcoin’s excess leverage in the futures market to be reduced soon, as indicated by its open interest levels. We noted:

“Historically, each time Bitcoin’s open interest has reached these levels this year, the price has subsequently experienced a notable drop, primarily due to the market overheating. In the short term, reducing this excess open interest is crucial for the market to maintain an upward trajectory. Therefore, a sharp downward movement is not out of the question in the coming weeks.”

This is exactly what has occurred. Since Monday’s release of Crypto Crisp, Bitcoin has dropped by approximately 3.8%, while Ethereum has fallen by 9.2%. This has led to a reduction in open interest for Bitcoin and Ethereum futures by roughly $700 million and $950 million, respectively.

Chart 1: Bitcoin and Ethereum Futures Open Interest