Because professional traders are avoiding leverage longs, the price of bitcoin has fallen below $19K.
BTC plunged to its lowest point since July 13 but data suggests professional traders are still pessimistic about a speedy rebound.
On September 6, Bitcoin (BTC) unexpectedly dropped $860 in price, going from $19,820 to $18,960 in less than two hours. The shift led to the highest Bitcoin futures liquidations in over three weeks, totaling $74 million, at derivatives markets. The current level of $18,733 is a 24% correction from the climb to $25,000 on August 15 and is the lowest level since July 13.
In the early morning hours of September 6, there was a 2% pump toward $20,200. However, the move was immediately tempered, and an hour later, Bitcoin was back trading near $19,800. The price movement of Ether (ETH), which increased by 7% in the 48 hours before to the market correction, was more fascinating.
Since Ether fell 5.6% on September 6 and Bitcoin lost $860, there is little evidence to support any conspiracies that investors changed their stance to favor the cryptocurrency.
Since U.S. equities lost $1.25 trillion in a single day on August 27 in response to comments made by Chair of the Federal Reserve of the United States, Jerome Powell, the market has been in a bit of a rut. The S&P 500 closed down 3.4% on that day after Powell stated that higher interest rate rises were still very much on the table at the yearly Jackson Hole Economic Symposium.
From last week, professional traders have been negative.
Due to the price disparity between quarterly futures and spot markets, retail traders typically steer clear of them. Nevertheless, because they eliminate the funding rate variation that frequently happens in a perpetual futures contract, they are the favored tools of expert traders.
In order to cover expenses and related risks, the indicator should trade at a 4% to 8% annualized premium in strong markets. In light of the fact that the Bitcoin futures premium stayed below 3% the whole period, it is reasonable to assume that derivatives traders had been neutral to bearish over the previous month. This information illustrates the professional traders’ reluctance to increase leveraged long (bull) holdings.
In order to eliminate externalities unique to the futures instrument, one must also evaluate the Bitcoin options markets. When market makers and arbitrage desks are overcharging for upside or downside protection, for instance, the 25% delta skew is a telltale indication.
Options traders increase their likelihood of a price drop during bad markets, pushing the skew indicator beyond 12%. The bearish put options are discounted in contrast to bullish markets, which tend to move the skew indicator below a negative 12% level.
Since September 1, the 30-day delta skew has been over the 12% cutoff, indicating that options traders are less likely to provide downside protection. These two derivatives indicators imply that the September 6 Bitcoin price collapse may have been somewhat anticipated, which accounts for the minimal effect on liquidations.
In contrast, the August 18 decline in the price of Bitcoin to $2,500 resulted in leveraged long (purchasers) liquidating positions totaling $210 million. However, negative price action is not always a result of the current gloomy attitude. Therefore, one should exercise caution when market leaders and whales are less likely to add leverage to long positions and provide downside protection through the use of options.