Bitcoin (Bitcoin) fell 25.4% in 48 hours, bottoming out at $15,590 on November 9. Cryptocurrency exchanges, FTX, suspension of withdrawalsMore importantly, the last time levels below $17,000 were seen was almost two years ago, revealing fears of contagion.
The move liquidated $285 million worth of leveraged long (bullish) positions, with some traders predicting a potential drop of $13,800.
What an exciting time to be alive! I love the volatility these elites are creating! They really want to buy on the cheap before the next bull cycle! Thanks for being prepared months in advance!
—JD (@jaydee_757) November 14, 2022
As explained by independent market analyst Jaydee_757, the bearish trend continues to exert pressure and $17,200 is a resistance level. Still, such an analysis offers no guarantee that he will eventually reach the $13,800 bottom.
Curiously, this price move coincided with an improvement in global stock market conditions on Oct. 4, when the S&P 500 Index rose 6.4% between Nov. 10 and Nov. 11, boosting tech stocks’ The heavy Nasdaq Composite rose 9.5%. Bitcoin is therefore completely decoupled from traditional finance, at least from a technical point of view.
Further uncertainty in Bitcoin has been introduced by Grayscale Bitcoin Trust shares trading on the over-the-counter stock market after the $11.4 billion fund discount on its assets topped 40%.
Monitor GBTC liquidity and lender exposure to the product for contagion risk
Looks like someone is selling tons of GBTC
The discount has now grown to over 40% and the implied price of BTC is $9,000, putting a lot of GBTC in a toxic spot.
— Vance Spencer (@pythianism) November 11, 2022
As noted by Vance Spencer, BTC’s implied price is below $9,000, according to fund trading, and the pressure should continue if some holders use the stocks as collateral for loans.
Still, the negative sentiment that caused Bitcoin to drop below $20,000 does not mean that professional investors are bearish at current price levels.
Margin traders did not close long
Monitoring the margin and options markets gives great insight into how professional traders are positioned, allowing investors to borrow cryptocurrencies to leverage their trading positions.
For example, you can increase your exposure by borrowing stablecoins to buy additional Bitcoin positions. Bitcoin borrowers, on the other hand, can only short the cryptocurrency as they are betting that the price will fall. Unlike futures contracts, the balance between long and short margins is not always the same.
The chart above shows OKX traders’ margin lending ratio increased from Nov 8 to Nov 10, with no traders closing their leveraged longs despite a 25.4% price correction indicates that
Additionally, the indicator continues to strongly favor stablecoin borrowing, indicating that traders are holding a bullish position.
The options market turned bearish
Traders should scan the options market to understand if Bitcoin can regain support at $18,500. A delta skew of 25% is what arbitrage desks and market makers see as either upside or downside. It’s a sign that you’re overcharging for protection.
This indicator compares similar call (buy) and put (sell) options and is positive when fear is prevalent as the premium for protective put options is higher than for risky call options.
The skew indicator exceeds 10% when traders fear a crash in the Bitcoin price. On the other hand, generalized excitement reflects a negative 10% bias.
As you can see above, the 25% delta skew has been below 10% since Oct 26th, but quickly crossed that threshold on Nov 8th.
Whenever this indicator is above 10%, it indicates that the trader is intimidated and reflects a lack of interest in providing downside protection.
FUD dismissal won’t happen overnight
Despite bearish Bitcoin options indicators, OKX’s margin lending rate shows that whales and market makers remain bullish bets. Contagion fears may explain the mixed sentiment, as investors struggle to interpret recent moves by the Crypto.com exchange. Including “accidental” transfers 320,000 Ether (ethereum) to Gate.io.
Run on Crypto com will start after FTX collapse. Investors have begun to withdraw funds from Singapore-based cryptocurrency exchanges in a sign that the dramatic collapse of FTX is causing an exchange-to-exchange contagion. Cronos, the token that underpins the Crypto com business, plummeted. https://t.co/evk4J1vnnL pic.twitter.com/wMJmvch2D0
— Holger Zschaepitz (@Schuldensuehner) November 14, 2022
Analyst Holger Zschaepitz said in a post that investors’ current sentiment is that they don’t want to risk on a centralized exchange that offers similar products and services to the bankrupt FTX.
As a result, derivatives reflect a low likelihood of regaining support at $18,500 until more data shows that liquidity in the cryptocurrency ecosystem has recovered.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investment and trading movements involve risk. You should do your own research when making a decision.