Stablecoin flows hint at $50K Bitcoin after Tesla pump liquidates $500M in BTC shorts
Bitcoin (BTC) extended its rally on February 9 by more than $46,000, a day after the U.S. Securities and Exchange Commission (SEC) said Tesla had bought BTC for $1.5 billion. The price of bitcoin rose on the 8th. February on the major exchanges immediately jumped from $39,000 to $45,000 after the news was announced.
1-hour candlestick chart of BTC/USD (Bitstamp). Source: View of the shop
Massive Bitcoin Liquidation
When the price of bitcoin initially reached $45,000, it led to the liquidation of short positions worth $500 million.
Bitcoin Liquidation. Source: Bybt.com.
The term liquidation in the bitcoin futures market refers to when the price of BTC rapidly exceeds the liquidation prices of futures contracts in a short period of time.
For example, if a trader raises 10 times the underlying capital and trades 100,000 bitcoins at $10,000, the position will be liquidated after a 10% price movement.
According to Bybt.com, $1.34 billion worth of positions were liquidated on the futures market in the past 24 hours.
Two trends emerge from this: First, the derivatives market was extremely overcrowded with short sellers. When news of Tesla broke, positions tightened en masse, liquidating positions of hundreds of millions of dollars within hours.
Second, it shows that many investors did not expect Tesla to actually invest in bitcoin, even after Musk’s announcement on the 29th. January 2021 converted his bio to bitcoin.
Meanwhile, cryptocurrency traders have become cautious due to extremely high funding rates in the major futures markets.
BTC perpetual swap funding rate. Source: Digital asset data
The refinancing rate rises when the majority of the market buys or craves bitcoin. If refinancing rates are too high, the market is subject to a prolonged contraction that could lead to a sharp decline in the short term.
However, the cryptocurrency trader known as Loma says the market is not yet arrogant. He believes that when traders are overconfident and do not expect a sharp decline, that is when a correction is likely to occur. He said:
I want us to get to a point where people say we can’t track 70-90% before I consider closing my $BTC spot. I remember feeling that $BTC would never go below $10k again in 2018. We went for ~$3,500. Never say never.A tributary of the Stable. Source: CryptoQuant
Meanwhile, CryptoQuant CEO Ki Yong Ju pointed out that there is a new buying demand for the exchanges due to the perceived influx of Stublecoins. This will likely serve as a catalyst for bitcoin in the near future. He wrote:
Call me crazy, but I think we’re close to 50,000. I just got another signal for a stable deposit.
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