Bitcoin (BTC) lost 25.4% in 48 hours, bottoming out at $15,590 on Nov. 9 as investors rushed out of their positions after second-largest cryptocurrency exchange FTX halted withdrawals. More importantly, the sub-$17,000 levels were last seen almost two years ago, and the fear of contagion became apparent.
The move liquidated $285 million in leveraged long (bullish) positions, leading some traders to predict a potential downside of $13,800.
What an exciting time to be alive! Loving the volatility these elites are creating! They really wanna buy LOW before the next bull cycle! Thank goodness we were ready months in advance!
Are we gonna hit that 13k target? Who cares, its a huge buy opportunity long term! USDBTC #BTC pic.twitter.com/2v0ThmIoNG
—JD (@jaydee_757) November 14, 2022
What an exciting time to be alive! I love the volatility these elites are creating. They really want to buy LOW before the next bullish cycle! Good thing we are prepared months in advance!
Are we going to hit that 13,000 goal? Who cares, it’s a great long-term buying opportunity!
As described by independent market analyst Jaydee_757, the downtrend continues to exert its pressure, with $17,200 serving as the resistance level. Still, such analysis does not guarantee that the final bottom of $13,800 will be reached.
Interestingly, the price action coincided with improving conditions for global stock markets on Oct. 4, as the S&P 500 Index gained 6.4% between Nov. 10-11 and the tech-heavy Nasdaq Composite rallied a 9.5%. Therefore, at least from a technical perspective, Bitcoin was completely decoupled from traditional finance.
Additional uncertainty about Bitcoin has been caused by Grayscale Bitcoin Trust shares trading on over-the-counter stock markets after the fund’s $11.4 billion discount on its assets exceeded 40%.
watching GBTC liquidity and lenders exposure to said product for contagion risk
seems someone is selling a lot of GBTC
discount is now >40% and widening, implied BTC price is USD 9K, and a lot of GBTC is sitting in toxic places atm
—Vance Spencer (@pythianism) November 11, 2022
monitoring GBTC liquidity and lenders’ exposure to GBTC due to contagion risk
looks like someone is selling a lot of GBTC
the discount is now >40% and widening, the implied BTC price is $9,000, and a lot of GBTC is in toxic places right now
As Vance Spencer pointed out, the implied price of BTC according to the funds’ trading is below $9,000, and the pressure should continue if some holders use their shares as collateral for loans.
Still, the negative sentiment that sent Bitcoin falling below $20,000 does not mean that professional investors are bearish on current price levels.
Margin traders did not close their long positions
Monitoring the options and margin markets provides excellent insight into how professional traders are positioning, allowing investors to borrow cryptocurrencies to take advantage of their trading position.
For example, exposure can be increased by borrowing stablecoins to buy an additional Bitcoin position. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet its price will decline. Unlike futures contracts, the balance between long and short spreads does not always match.
The chart above shows that OKX Traders’ Margin Loan Index increased from November 8 to November 10, indicating that traders did not close their leveraged longs despite the 25.4% price correction.
Additionally, the metric continues to favor stablecoin lending by a wide margin, indicating that traders have held bullish positions.
Options markets turned bearish
Traders should scan the options markets to understand if Bitcoin can reclaim the $18,500 support. The 25% delta bias is a tell-tale sign any time arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call and put options and will turn positive when fear prevails because the protective premium on put options is higher than risky call options.
The bias indicator will move above 10% if traders fear a Bitcoin price drop. On the other hand, the general enthusiasm reflects a negative bias of 10%.
As shown above, the 25% delta bias had been below 10% since October 26, but moved quickly above that threshold on November 8, suggesting options traders were pricing in higher risk of unexpected price dumps.
Any time this metric exceeds 10%, it indicates that traders are fearful and reflects a lack of interest in offering downside protection.
FUD Removal Doesn’t Happen Overnight
Despite the bearish Bitcoin options indicator, the OKX 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 by the Crypto.com exchange, including an “accidental” transfer of 320,000 Ether (ETH) to Gate.io.
Run on Crypto com starts after FTX collapse. Investors began pulling funds from Singapore-based crypto exchange in a sign that the dramatic collapse of FTX is sparking contagion among exchanges. Cronos, token underpinning Crypto com business, has plunged. https://t.co/evk4J1vnnL pic.twitter.com/wMJmvch2D0
—Holger Zschaepitz (@Schuldensuehner) November 14, 2022
The flight from Crypto.com begins after the collapse of FTX. Investors have begun withdrawing funds from the Singapore-based exchange, in a sign that FTX’s dramatic collapse is causing contagion among exchanges. Cronos, the token that underpins Crypto.com’s business, has crashed.
The post by analyst Holger Zschaepitz describes current investor sentiment as risk averse on centralized exchanges offering similar products and services from the now-bankrupt FTX.
Consequently, derivatives reflect low confidence in recapturing the $18,500 support until more data shows liquidity in the cryptocurrency ecosystem has been restored.
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