Liquidation

3 Bitcoin price metrics suggest Sept. 9’s 10% pump marked the final cycle bottom

Is the BTC bottom finally in? Data suggests that bears might be losing their tight grip on the market.

The correlation between Bitcoin (BTC) and stock markets has been unusually high since mid-March, meaning the two asset classes have presented near-identical directional movement. This data might explain why the 10% rally above $21,000 is being dismissed by most traders, especially considering S&P 500 futures gained 4% in two days. However, Bitcoin trading activity and the derivatives market strongly support the recent gains.

Curiously, the current Bitcoin rally happened a day after the White House Office of Science and Technology Policy released a report investigating the energy usage associated with digital assets. The study recommended enforcing energy reliability and efficiency standards. It also suggested federal agencies provide technical assistance and initiate a collaborative process with the industry.

Bitcoin/USD (orange, left) vs. S&P 500 futures (blue). Source: TradingView

Notice how the peaks and valleys on both charts tend to coincide, but the correlation changes as investors’ perceptions and risk assessments vary over time. For example, between May 2021 and July 2021, the correlation was inverted most of the period. Overall, the stock market posted steady gains while the crypto markets collapsed.

More importantly, the chart above shows a huge gap being opened between Bitcoin and the stock market as stocks rallied from mid-July to mid-August. A comparison using the same scale would be better, but that does not work due to the difference in volatility. Still, it is reasonable to conclude that historically these gaps tend to close.

The S&P 500 futures declined 18% in 2022 until Sept. 6, while Bitcoin dropped 60.5% during the same period. So it makes sense to assume that if investors’ appetite for risk assets returns, assets with higher volatility will outperform during a rally.

There are other factors that are in play though, so there is no way to predict the outcome. But the return of investors’ appetite for risk would justify Bitcoin’s outperforming the stock market and significantly reducin the performance difference.

Pro traders were not expecting Bitcoin to bounce

Bearish traders were liquidated on $120 million in futures contracts, the highest figure since June 13. Typically, one would not expect this outcome considering Bitcoin had lost 13% in the two weeks leading to Sept. 7, but one could assume that short sellers (bears) were caught by surprise as the exchanges’ liquidation engine scrambled to buy those orders.

However, there’s other anecdotal evidence hidden in the liquidation data provided by the derivatives exchanges.

Bitcoin futures 24-hour liquidation data. Source: CoinGlass

Notice how retail-driven exchanges (Binance and Bybit) represented a mere 17.4% of the total orders that were forcefully closed, while their combined market share on Bitcoin futures is 30.6%. The data leaves no doubt that the whales at OKX and FTX were the ones being squeezed.

Another interesting piece of data that sets Sept. 9’s 10% pump apart is Bitcoin dominance, which measures its market share versus all other cryptocurrencies.

Bitcoin dominance. Source: TradingView

Notice how the indicator spiked from 39% to the present 40.5%, something unseen since May 11 when Bitcoin flash crashed below $26,000. It took another 31 days for the bear market to break the $28,500 support on June 12. Also note that a sharp increase in BTC dominance can happen during rallies and steep price corrections so relying solely on these indicators provides little aid in interpreting market movements.

Fear has been erased from options markets

The 25% delta skew, which is the leading Bitcoin options “fear and greed” metric, improved just enough to enter a neutral level.

Bitcoin 60-day options 25% delta skew: Source: Laevitas.ch

If option investors feared a price crash, the skew indicator would move above 12%, whereas investor excitement tends to reflect a negative 12% skew. After peaking at 18% on Sept. 7, the metric currently stands at 12%, which is the very edge of the neutral market. Therefore, the Bitcoin pump on Sept. 9 signaled that professional investors are no longer demanding excessive premiums for protective put options.

These three indicators back the relevance of Bitcoin’s recent 10% pump. A $120 million liquidation on leverage shorts (bears) was concentrated on less “retail-oriented” derivatives exchanges, the 1.5% hike in Bitcoin’s dominance rate and options traders pricing similar upside and downside risks all suggest that Bitcoin may have finally found a bottom.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

3 reasons why Bitcoin’s drop to $21K and the market-wide sell-off could be worse than you think

There are signs of further turbulence ahead. The absence of a BTC futures premium, $470 million in liquidations and excessive stablecoin lending all point toward new yearly lows.

On Friday, August 19, the total crypto market capitalization dropped by 9.1%, but more importantly, the all-important $1 trillion psychological support was tapped. The market’s latest venture below this just three weeks ago, meaning investors were pretty confident that the $780 billion total market-cap low on June 18 was a mere distant memory.

Regulatory uncertainty increased on Aug. 17 after the United States House Committee on Energy and Commerce announced that they were “deeply concerned” that proof-of-work mining could increase demand for fossil fuels. As a result, U.S. lawmakers requested the crypto mining companies to provide information on energy consumption and average costs.

Typically, sell-offs have a greater impact on cryptocurrencies outside of the top 5 assets by market capitalization, but today’s correction presented losses ranging from 7% to 14% across the board. Bitcoin (BTC) saw a 9.7% loss as it tested $21,260 and Ether (ETH) presented a 10.6% drop at its $1,675 intraday low.

Some analysts might suggest that harsh daily corrections like the one seen today is a norm rather than an exception considering the asset’s 67% annualized volatility. Case in point, today’s intraday drop in the total market capitalization exceeded 9% in 19 days over the past 365, but some aggravants are causing this current correction to stand out.

The BTC Futures premium vanished

The fixed-month futures contracts usually trade at a slight premium to regular spot markets because sellers demand more money to withhold settlement for longer. Technically known as “contango,” this situation is not exclusive to crypto assets.

In healthy markets, futures should trade at a 4% to 8% annualized premium, which is enough to compensate for the risks plus the cost of capital.

Bitcoin 3-month futures’ annualized premium. Source: Laevitas

According to the OKX and Deribit Bitcoin futures premium, the 9.7% negative swing on BTC caused investors to eliminate any optimism using derivatives instruments. When the indicator flips to the negative area, trading in “backwardation,” it typically means there is much higher demand from leveraged shorts who are betting on further downside.

Leverage buyers’ liquidations exceeded $470 million

Futures contracts are a relatively low-cost and easy instrument that allows the use of leverage. The danger of using them lies in liquidation, meaning the investor’s margin deposit becomes insufficient to cover their positions. In these cases, the exchange’s automatic deleveraging mechanism kicks in and sells the crypto used as collateral to reduce the exposure.

Aggregate crypto 24-hour liquidations, USD. Source: Coinglass

A trader might increase their gains by 10x using leverage, but if the asset drops 9% from their entry point, the position is terminated. The derivatives exchange will proceed to sell the collateral, creating a negative loop known as a cascading liquidation. As depicted above, the Aug. 19 sell-off presented the highest number of buyers being forced into selling since June 12.

Margin traders were excessively bullish and destroyed

Margin trading allows investors to borrow cryptocurrency to leverage their trading position and potentially increase their returns. As an example, a trader could buy Bitcoin by borrowing Tether (USDT), thus increasing their crypto exposure. On the other hand, borrowing Bitcoin can only be used to short it.

Unlike futures contracts, the balance between margin longs and shorts isn’t necessarily matched. When the margin lending ratio is high, it indicates that the market is bullish—the opposite, a low ratio, signals that the market is bearish.

OKX USDT/BTC margin lending ratio. Source: OKX

Crypto traders are known for being bullish, which is understandable considering the adoption potential and fast-growing use cases like decentralized finance (DeFi) and the perception that certain cryptocurrencies provide protection against USD inflation. A margin lending rate of 17x higher favors stablecoins is not normal and indicates excessive confidence from leverage buyers.

These three derivatives metrics show traders were definitely not expecting the entire crypto market to correct as sharply as today, nor for the total market capitalization to retest the $1 trillion support. This renewed loss of confidence might cause bulls to further reduce their leverage positions and possibly trigger new lows in the coming weeks..

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

FTX on the verge of purchasing BlockFi in $25M fire sale: Report

The cryptocurrency derivatives exchange could potentially buy out the troubled lender for pennies on the dollar.

Cryptocurrency exchange FTX is close to purchasing digital asset lender BlockFi’s remaining assets for $25 million, according to CNBC.

According to sources close to the matter, BlockFi’s equity investors were wiped out and are now writing their positions off at a loss. In addition, the FTX deal could take multiple months to close, opening up the possibility that the price tag could shift over that period. In June 2021, BlockFi had a reported valuation of $5 billion.

BlockFi CEO Zac Prince has since denied these rumors, taking to Twitter on June 30 to refute speculation that the company is being sold for $25 million.

Earlier this year, BlockFi had over 1 million clients, over $10 billion in assets and deposits, and had distributed more than $700 million in crypto rewards and interest. However, BlockFi’s fortunes quickly soured after it reportedly became a major creditor of the now troubled hedge fund Three Arrow Capital, also known as 3AC. As a result, it was forced to liquidate 3AC’s positions amounting to $1.33 billion, likely at a severe loss as the bear market intensified in June. 

The situation was exacerbated by 3AC posting collateral for the loan in $400 million worth of Grayscale Bitcoin Investment Trust (GBTC) shares, which often trade at a discount or premium to spot Bitcoin (BTC) prices. At the time of liquidation, GBTC shares were trading at a 34% discount to the net asset value of its Bitcoin holdings, which plunged further as BlockFi began closing the position.

Related: FTX may be planning to purchase a stake in BlockFi

Earlier this month, BlockFi said it would fire 20% of its 850-strong staff due to profitability woes in the short term. Just last week, FTX had extended a $250 million line of credit to BlockFi and denied rumors that it was acquiring the ill-fortuned firm. 

Update: Added Zac Prince’s latest Twitter update denying the company is being sold for $25 million. 

Large Bitcoin liquidations mean one man’s pain is another man’s pleasure — Time to buy the dip?

Pro traders were forced to cut their losses after margin and futures markets became over-leveraged, creating a potential entry point for bullish buyers.

Bitcoin (BTC) has been unable to restore the $24,000 support since Celsius, a popular staking and lending platform, paused withdrawals from its platform on June 13. A growing number of users believe Celsius mismanaged its funds following the collapse of the Anchor Protocol on the Terra (LUNA; now LUNC) ecosystem and rumors of its insolvency continue to circulate.

An even larger issue emerged on June 14 after crypto venture capital firm Three Arrows Capital (3AC) reportedly lost $31.4 million through trading on Bitfinex. Furthermore, 3AC was a known investor in Terra, which experienced a 100% crash in late May.

Unconfirmed reports that 3AC faced liquidations totaling hundreds of millions from multiple positions agitated the market in the early hours of June 15, causing Bitcoin to trade at $20,060, its lowest level since Dec. 15, 2020.

Let’s take a look at current derivatives metrics to understand whether June 15’s bearish trend reflects top traders’ sentiment.

Margin markets deleveraged after a brief spike in longs

Margin trading allows investors to borrow cryptocurrency and leverage their trading position to potentially increase returns. For example, one can buy cryptocurrencies by borrowing Tether (USDT) to enlarge exposure.

On the other hand, Bitcoin borrowers can short the cryptocurrency if they bet on its price decline, and unlike futures contracts, the balance between margin longs and shorts isn‘t always matched. This is why analysts monitor the lending markets to determine whether investors are leaning bullish or bearish.

Interestingly, margin traders boosted their leverage long (bull) position on June 14 to the highest level in two months.

Bitfinex margin Bitcoin/USD longs/shorts ratio. Source: TradingView

Bitfinex margin traders are known for creating position contracts of 20,000 BTC or higher in a very short time, indicating the participation of whales and large arbitrage desks.

As the above chart indicates, even on June 14, the number of BTC/USD long margin contracts outpaced shorts by 49 times, at 107,500 BTC. For reference, the last time this indicator stood below 10, favoring longs, was on March 14. The result benefited the counter-traders at that time, as Bitcoin rallied 28% over the following two weeks.

Bitcoin futures data shows pro traders were liquidated

The top traders’ long-to-short net ratio excludes externalities that might have impacted the margin instruments. By analyzing these whale positions on the spot, perpetual and futures contracts, one can better understand whether professional traders are bullish or bearish.

Exchanges’ top traders Bitcoin long-to-short ratio. Source: Coinglass

It’s important to note the methodological discrepancies between different exchanges, so the absolute figures have less importance. For example, while Huobi traders have kept their long-to-short ratio relatively unchanged between June 13 and Ju15, professional traders at Binance and OKX reduced their longs.

This movement could represent liquidations, meaning the margin deposit was insufficient to cover their longs. In these cases, the exchange’s automatic deleveraging mechanism takes place by selling the Bitcoin position to reduce the exposure. Either way, the long-to-short ratio is affected and signals a less bullish net position.

Liquidations could represent a buying opportunity

Data from derivatives markets, including margin and futures, show that professional traders were definitely not expecting such a deep and continuous price correction.

Even though there has been a high correlation to the stock market and the S&P 500 index posted a 21.6% year-to-date loss, professional crypto traders were not expecting Bitcoin to drop another 37% in June.

While leverage allows one to maximize gains, it can also force cascading liquidations such as the recent events seen this week. The automated trading systems of exchanges and DeFi platforms sell investors’ positions at whatever price is available when the collateral is insufficient to cover the risk and this put heavy pressure on spot markets.

These liquidations sometimes create a perfect entry point for those savvy and brave enough to counter-trade excessive corrections due to lack of liquidity and the absence of bids on the trading platforms. Whether or not this is the final bottom is something that will be impossible to determine until a few months after this volatility has passed.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

BTC price crashes to $20.8K as ‘deadly’ candles liquidate $1.2 billion

Carnage for short-term traders and speculators as volatility destroys both long and short positions on the way to $20,000.

Bitcoin (BTC) came within $1,000 of its previous cycle all-time highs on June 14 as liquidations mounted across crypto markets. 

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Bitcoin price hits 18-month lows

Data from Cointelegraph Markets Pro and TradingView showed BTC/USD hitting $20,816, on Bitstamp, its lowest since the week of December 14, 2020.

A sell-off that began before the weekend intensified after the June 13 Wall Street opening bell, with Bitcoin and altcoins falling in step with United States equities.

The S&P 500 finished the day down 3.9%, while the Nasdaq Composite Index shed 4.7% ahead of key comments from the U.S. Federal Reserve on its anti-inflation policy.

The worst of the rout was reserved for crypto, however, and with that, BTC/USD lost 22.4% from the start of the week to the time of writing.

The pair was also “uncomfortably close” to crossing the $20,000 mark, trading firm QCP Capital noted, this representing the all-time high from its previous halving cycle, something which had never happened before.

In a circular to Telegram channel subscribers, QCP flagged both the inflation topic and potential insolvency at fintech protocol Celsius as driving the sell-off.

“We have been expressing concern about the collapse of a significant credit player since the LUNA blowup. The market is now panicking about the impact and contagion if Celsius becomes insolvent,” it explained:

“Some key liquidation levels that the market is looking out for are 1,150 in ETH, 0.8 in stETH/ETH and 20,000 in BTC. We are getting uncomfortably close.”

For other analysts, all bets were off when it came to guessing the BTC price floor or whether key trendlines would hold as support.

Rekt Capital warned that the 200-week simple moving average (SMA) at $22,400 had not been accompanied by significant volume interest, leaving the door open for a test of lower levels.

“BTC has reached the 200-week MA but the volume influx isn’t as strong as in previous Bear Market Bottoms formed at the 200 MA,” he told Twitter followers:

“But downside wicking below the 200 MA occurs & perhaps this wicking needs to occur this time to inspire a strong influx of volume.”

At the time of writing, the 200 SMA appeared to be acting more like resistance than support on low timeframes.

BTC/USD 1-week candle chart (Bitstamp) with 200 SMA. Source: TradingView

Altcoin futures index shows full force of retracement

On altcoins, Ether (ETH) fell to 40% below the previous week’s high to near the $1,000 mark.

Related: Lowest weekly close since December 2020 — 5 things to know in Bitcoin this week

Should that break, it would be the first time that ETH/USD had traded at three-digit prices since January 2021. As Cointelegraph reported, the pair had already crossed its $1,530 peak from Bitcoin’s previous halving cycle.

Across altcoins, there was little cause for celebration in this downtrend, Rekt Capital argued, highlighting flagging alt presence versus Bitcoin.

In a sign of the pain affecting all crypto traders, meanwhile, data from on-chain monitoring resource Coinglass confirmed cross-market liquidations passing $1.2 billion in just 24 hours.

Crypto liquidations chart. Source: Coinglass

The views and opinions expressed here 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.