Data shows derivatives had little to do with Bitcoin’s drop to $29K

One of the most interesting recent occurrences in the world of investing is the recent price drop from $20,000 all the way down to $29,000. While many believe this is due to a lack of confidence in the Bitcoin ecosystem, others believe it has more to do with the recent Bitcoin ETF rejection and the subsequent effect it had on the market.

Bitcoin’s price fell sharply last week, but at least there was a good reason: the total derivative market volume was simply too small. The automated tools that small investors use to trade derivatives can take advantage of large market movements, and those tools were not working for Bitcoin last week. But derivatives trading also had little to do with Bitcoin’s drop, according to data from bitcoinity.org.

The recent crash of Bitcoin to $29,000 could have little to do with the recent “dance” in the derivatives market, according to some analysts.. Read more about cryptocurrency trends 2021 and let us know what you think.

After a brief rally to $41,000 on the 14th. In June, investors in bitcoin (BTC) may have thought the bear market was finally over. After all, this is the highest level since the 21st century. May and the day MicroStrategy (MSTR) announced a successful $500 million bond issue.

The money is usually made available within one to two business days, and the proceeds are used to buy even more bitcoins for the business intelligence company’s balance sheet. Behind this fundraising, MicroStrategy has made another surprise offer to sell its shares for up to $1 billion to buy more bitcoins.

However, the following week saw a 30% drop, sending bitcoin to its lowest level since the 22nd. January brought. The low at $28,800 lasted less than 15 minutes, but bearish sentiment has already been established.

The sale was largely attributed to Chinese mining companies capitulating after being forced to abruptly shut down operations. In addition, an official of the People’s Bank of China (PBoC) on 21… June that all banks and payment institutions may not offer account opening or registration services for [virtual currency] activities.

The question remains: did the derivatives play a significant role in the correction or at least show signs of stress that could be a harbinger of an even more dangerous second downward phase?

Term premiums do not seem to reverse the trend

The futures premium (or basis) measures the spread between long-term futures contracts and current spot levels (regular markets). If this indicator fades or becomes negative, it is a red alert. This is also called backwardation and indicates bearish sentiment.

Huobi 3-Month Bitcoin Futures Basis. Source: Skewed

In healthy markets, futures contracts trade at an annual premium of 5-15%, known as contango. At worst, the 22nd. In June, this base reached a low of 2.5%, which is considered bearish, but not enough to trigger a red flag.

There was no panic among the major traders

The best traders’ long-to-short indicator is calculated based on clients’ consolidated positions, including spot, margin, perpetual and futures contracts. This measure provides a broader picture of the effective net position of professional traders.

Ratio of long and short positions of large dealers in derivatives markets. Source: Bybt

Data shows derivatives had little to do with Bitcoin’s drop to $29K

Despite the differences between the methods of cryptocurrency exchanges, the analysis of changes over time provides valuable information. Large traders on Binance, for example, increased their long positions relative to short positions on the 22nd. June.

There was a slight increase in net short exposure on Huobi, but nothing unusual as the indicator reached the same level two days earlier.

Finally, key OKEx traders lowered their prices on the 20th. June their long positions and have since maintained the 0.80 level in favor of shorts at 20%.

Liquidation of long-term contracts was less than $600 million

Those unaware of the price fluctuations would never have guessed that bitcoin was trading below $29,000, according to futures liquidation data.

Liquidation of global forward contracts (long positions are highlighted in red). Source. Coinalyze.net

Data shows derivatives had little to do with Bitcoin’s drop to $29K

The 22nd. Less than $600 million worth of long positions were closed in June, down from $750 million a day earlier. Had the long positions been considered, a 20% drop in less than two days would have resulted in much larger stop loss orders.

The data currently show no signs of stress due to long positions or potential negative fluctuations caused by the derivatives markets.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.If there is one thing that’s certain, it is that the market volatility surrounding Bitcoin is not going to disappear anytime soon. The basic reason for this is the sheer number of investors that have piled into the cryptocurrency. Just hours before the price of Bitcoin was dipping into the single digits on Wednesday, the market cap of the leading cryptocurrency had surpassed the $100 billion mark, making it the most valuable cryptocurrency ever in terms of the total market cap. At the time of writing, Bitcoin was down to $29,000 on the Luxembourg-based Bitstamp exchange.. Read more about derivatives meaning and let us know what you think.

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