In only a few hours on Saturday, $5.4 billion of Bitcoin futures contracts were liquidated, draining the market of 25% of its value, according to Glassnode’s weekly report. It was the second largest single day change in the futures market this year, behind only the massive sell-off of May 19.

It was only a week ago that Glassnode found futures trading was on the rise and the Chicago-based CME derivatives market accounted for 20% of global volume. But when open interest rises, it can lay the groundwork for a lot of volatility.

Open interest refers to outstanding futures or options contracts that have yet to be settled. Options function as their name suggests, giving the buyer the option to buy an asset at a predetermined price when the contract expires. Futures are more binding, locking the buyer into buying an asset at a predetermined price when the contract expires.

Both types of derivative contracts can be used to speculate on price movement or as a hedge, allowing the buyer to recoup some portion of their losses if the underlying asset, in this case Bitcoin, moves in an unfavorable direction.

The leveraged positions—so called because investors can place these bets with a relatively small amount of capital—can cause big market swings when prices fall.

“The chain of contract closures on Saturday amounted to a total rinse of 58,202 BTC in value,” Glassnode writes in its report. “In BTC denomination, this liquidation was the second largest single day change in Futures Open Interest in 2021, bested only by the historic sell-off on May 19 that totalled 79,244…