bitcoin (BTC) fell 25.4% in 48 hours, hitting $15,590 on Nov. 9 as investors rushed to exit positions after the second-largest cryptocurrency exchange, FTX, discontinued withdrawals. More importantly, the levels below $17,000 were last seen almost two years ago, and fear of contagion became evident.
The move liquidated $285 million in leveraged long (bullish) positions, leading some traders to predict a potential drop of $13,800.
What an exciting time to be alive! Loving the volatility these elites create! They really want to buy LOW before the next bull cycle! Thank goodness we were ready months in advance!
— JD (@jaydee_757) November 14, 2022
As described by independent market analyst Jaydee_757, the downtrend continues to exert pressure, with $17,200 as the resistance level. Still, such an analysis does not guarantee that the ultimate low of $13,800 will be reached.
Curiously, the price action coincided with improving global equity market conditions on Oct. 4, with the S&P 500 index gaining 6.4% between Nov. 10 and Nov. 11 and the high-component Nasdaq Composite technology, up 9.5%. So, at least from a technical perspective, Bitcoin has completely decoupled from traditional finance.
Further uncertainty over Bitcoin was caused by shares of Grayscale Bitcoin Trust trading on the OTC exchanges after the $11.4 billion discount on its assets exceeded 40%.
monitor GBTC’s liquidity and lenders’ exposure to said product for contagion risk
looks like someone is selling a lot of GBTC
the discount is now >40% and widening, the implied price of BTC is $9,000, and a lot of GBTC is sitting in toxic atm places
— Vance Spencer (@pythianism) November 11, 2022
As noted by Vance Spencer, the implicit price of BTC based on fund transactions is below $9,000, and the pressure is likely to continue if some holders use their shares as collateral for loans.
Still, the negative sentiment that took Bitcoin below $20,000 does not mean professional investors are bearish at current price levels.
Margin traders failed to close their longs
Margin and options market monitoring provides great insight into the position of professional traders, allowing investors to borrow cryptocurrency to leverage their trading position.
For example, one can increase exposure by borrowing stablecoins to buy an additional bitcoin position. On the other hand, Bitcoin borrowers can only sell the cryptocurrency because they are betting on its price falling. Unlike futures contracts, the balance between long and short margins is not always equal.
The chart above shows that OKX’s margin lending ratio for traders increased from November 8-10, signaling that traders failed to close their long levers despite the 25.4% price correction.
Furthermore, the metric continues to favor stable borrowing with a wide margin, indicating that traders have maintained bullish positions.
Options markets tumbled lower
Traders need to analyze the options markets to understand if Bitcoin can recover the $18,500 support. The 25% delta skew is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call (call) and put (sell) options and turns positive when fear prevails, because the protection premium of put options is higher than that of risky call options.
The bias indicator will move above 10% if traders fear a Bitcoin price crash. In contrast, generalized excitement reflects a negative bias of 10%.
As noted above, the 25% delta skew had been below 10% since Oct. 26, but quickly breached that threshold on Nov. 8, suggesting options traders were pricing in higher risk from downside declines. unexpected prices.
Anytime this metric goes above 10%, it signals traders are scared and reflects a lack of interest in offering downside protection.
The dismissal of the FUD does not happen overnight
Despite the bearish Bitcoin options indicator, OKX’s margin lending rate showed whales and market makers holding bullish bets. Fear of contagion could explain the mixed sentiment as investors struggle to interpret recent moves on the Crypto.com exchange, including an “accidental” transfer of 320,000 ether (ETH) to Gate.io.
Execution on Crypto com kicks off after FTX crashes. Investors have started withdrawing funds from the Singapore-based crypto exchange in a sign that FTX’s dramatic collapse is triggering contagion among exchanges. Cronos, the token that underpins the Crypto com business, plunged. https://t.co/evk4J1vnnL pic.twitter.com/wMJmvch2D0
— Holger Zschaepitz (@Schuldensuehner) November 14, 2022
Analyst Holger Zschaepitz’s post describes current investor sentiment as being risk averse on centralized exchanges offering products and services similar to the now bankrupt FTX.
Therefore, the derivatives reflect low confidence in the recovery of the $18,500 support until more data shows that liquidity in the cryptocurrency ecosystem has been restored.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.