Bitcoin Tanks 8%—Leverage Flush Sparks Volatility Warning

Blood in the crypto streets as Bitcoin gets a brutal 8% haircut. Overleveraged longs just got steamrolled—classic crypto Darwinism at work.

Volatility isn’t coming. It’s already here. Buckle up for the next round of liquidations while Wall Street hedgies ’strategically reposition’ their bags.

Funny how these corrections always happen right after the suits finish their PowerPoints about ’institutional adoption.’ Coincidence? Probably not.

Market Dynamics Behind the Correction

The correction coincided with a notable development in the broader macroeconomic landscape. On June 2, the “Bitfinex Alpha” report highlighted that a U.S. Court of Appeal decision reinstated disputed import tariffs, driving 30-year Treasury yields above 5% for the first time since 2009. This unexpected shift prompted a risk-off sentiment across markets, influencing investors’ appetite for high-risk assets like Bitcoin.

Institutional flows provide a clearer picture of market sentiment during this period. Spot Bitcoin exchange-traded funds (ETFs) witnessed substantial inflows, with investors adding $6.2 billion to Bitcoin exposure in the first four weeks of May. Meanwhile, gold ETFs saw $2.7 billion in outflows, indicating a rotation from traditional safe havens into digital assets.

Yet, this bullish narrative encountered a hiccup towards the end of May. BlackRock’s iShares bitcoin Trust (IBIT) reported its largest-ever daily outflow of nearly $431 million on May 30. Combined with other ETFs, the total withdrawals reached $616 million—the biggest single-day outflow since late February. This reversal suggests that some investors chose to realize gains amid rising macroeconomic uncertainties.

Indicators Pointing to Potential Volatility

The report also underscored that realized gains have accelerated recently. Bitcoin’s Relative Unrealised Profit (RUP) indicator exceeded its two-standard-deviation upper band—a rare occurrence seen in only 16% of its trading history. Historically, such peaks correspond with sharp volatility spikes as traders lock in profits, temporarily shaking market stability.

High profitability tends to increase selling pressure, requiring spot demand to absorb redistributed coins to sustain an upward price trend. This dynamic often results in choppy price action and brief corrections before any potential recovery.

Derivatives Market and Leverage Impact

The derivatives market painted an even more detailed picture of the correction’s underlying mechanics. Open interest in perpetual futures swelled significantly as Bitcoin approached its all-time highs, reflecting rising Leveraged longs. The recent pullback forced many leveraged positions to unwind, reducing systemic risk in the derivatives ecosystem.

Options open interest had reached $49.4 billion before the May 29 expiry trimmed it to about $39 billion. This high level of derivatives activity indicates growing institutional involvement but also adds complexity, as large derivatives books can amplify price swings when liquidity tightens in the broader financial environment.

The report concluded that the recent correction was necessary to remove excess leverage, realign supply and demand, and reset futures and options funding rates. These adjustments create healthier conditions for sustained upward movement over the medium term.

Short-Term Outlook: Turbulence Ahead

Despite the leverage cleanup, on-chain data suggests Bitcoin may face turbulence in the NEAR term. The cryptocurrency is currently trading just 6.5% below its record high, a range where profit-taking and volatility spikes often occur.

As of June 3, 2025, at 2:50 am UTC, Bitcoin’s price stands at approximately $106,288, marking a modest 0.82% gain over the past 24 hours. The market capitalization is $2.11 trillion, with a 24-hour trading volume around $47.7 billion. Bitcoin dominance remains strong at 63.17%, while the overall crypto market is valued at $3.35 trillion with a 24-hour volume nearing $110 billion.

Conclusion

Bitcoin’s recent pullback serves as a healthy correction after a strong rally, eliminating excessive leverage and restoring balance between buyers and sellers. However, elevated realized gains and macroeconomic uncertainties signal that traders should brace for short-term volatility. While these fluctuations are common in Bitcoin’s price cycles, they underscore the importance of cautious Optimism as the market digests new developments and navigates the evolving economic landscape.