The Impact of Nvidia’s Collapse on the Crypto Market
The recent decline in the crypto market on Jan. 27 was heavily influenced by the historic collapse of Nvidia and chip stocks. This event sent shockwaves through the market, affecting both spot and derivatives markets.
Nvidia’s $600 Billion Market Cap Wipeout
Nvidia experienced a massive $600 billion market cap wipeout, the largest in stock market history, triggered by the emergence of DeepSeek, a Chinese AI company. DeepSeek’s development of a highly efficient AI model raised concerns about the demand for Nvidia’s high-end chips, impacting the AI and semiconductor industries.
Impact on Bitcoin Derivatives Market
- Open interest on CME Bitcoin futures dropped from $20 billion to $17.80 billion in just two days.
- Open interest on Binance Bitcoin futures also significantly declined, falling from $12.6 billion to around $11.3 billion.
Behavior of Institutional Investors
Institutional investors, such as hedge funds and asset managers, tend to cut exposure to risk assets during macroeconomic uncertainties. The recent market sell-off triggered by DeepSeek and Nvidia’s collapse led to a significant drop in Nasdaq and Bitcoin’s price, causing stop losses and liquidations on CME.
Comparison of CME and Binance Futures
- CME futures are cash-settled, leading to a dramatic unwinding of positions during price declines.
- Binance futures include a large proportion of perpetual futures, allowing traders to maintain positions without expiration dates.
Deleveraging and Market Recovery
The sharp drop in open interest across all platforms indicates a deleveraging trend, reducing short-term volatility. Previous research suggests that such events are primarily liquidations rather than shifts in sentiment, hinting at a potential recovery in open interest in the near future.
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