As a seasoned crypto investor with over a decade of experience navigating the volatile and unpredictable world of digital currencies, I have seen more than my fair share of market fluctuations. The recent events surrounding Bitcoin (BTC) are yet another reminder of why we invest in this space – it’s never dull!
Since December 5th, the price of Bitcoin (BTC) has seen two instances where over $1 billion worth of futures contracts were liquidated. Despite starting and ending near $97,000 during this period, these events caused a significant drop in its value. The most recent occurrence took Bitcoin from $101,430 on December 8th to $94,200 on December 9th, resulting in the elimination of approximately $2.9 billion in highly leveraged positions.
Although temporary setbacks may be observed in investor sentiment, the Bitcoin derivatives market currently finds itself in a more robust condition – a situation that could pave the way for an unexpected surge to a fresh record high. Given that traders tend to shy away from investing during periods of overheated markets, where funding rates are unusually high, this stability is crucial.
The aggregate Bitcoin futures open interest declined 8% between Nov. 25 and Dec. 10, from BTC 663,700 to the present BTC 609,400. But, given the impressive $7,160 Bitcoin 24-hour price decline on Dec. 9, the demand for leverage was relatively unaffected.
Starting from December 5th, the funding rate reached a high of 9% monthly, but since the price plummeted to $94,200 on December 9th, it has essentially remained stable. This flattening out of the funding rate helped reduce the excess retail leverage that usually triggers a chain reaction of liquidations.
Extreme fluctuations in Bitcoin’s value worry newcomers and lessen its attractiveness as an investment. But, decreased borrowing power gives confidence to owners that the latest increase in value comes from accumulation, particularly by institutional investors.
Bitcoin eyes more gains as ETF inflows defy short-term fears
Traders are concerned that the rapid rise of Bitcoin’s price over the past three months might be followed by a drop, yet this immediate perspective overlooks the significant growth. The recent increase in assets for U.S.-based spot Bitcoin exchange-traded funds (ETFs), totaling $15.2 billion since October 10, underscores robust demand.
In the last few weeks, companies like MicroStrategy, Riot Platforms, and Marathon Digital (MARA) have been actively purchasing Bitcoins. Specifically, from December 2nd to December 8th, MicroStrategy bought approximately 21,550 Bitcoins at an average price of about $98,783 per Bitcoin, amounting to a total of $2.1 billion. Simultaneously, Riot Platforms secured a debt of $500 million, mainly intended for purchasing Bitcoins. Furthermore, Marathon Digital also increased its Bitcoin holdings substantially by adding 11,774 Bitcoins to its assets within the same timeframe.
While many everyday traders were less hopeful due to Bitcoin’s monthly futures being 15% higher than the current market price, big players like whales and market makers generally maintained a positive outlook. This higher price in futures contracts is often expected as it reflects a longer settlement period, so a 5% to 10% difference is typically seen as neutral rather than a cause for concern.
Even though some might argue that the December 5 annualized premium of 21% was too high, it’s currently unchanged from two weeks ago, indicating that whatever caused the temporary surge in demand for leverage has subsided. From a derivatives standpoint, this situation offers an opportunity to take on more bullish positions, suggesting possible further price increases.
To solidify the claim that professional traders haven’t turned bearish on Bitcoin, an investor who wants to wager that Bitcoin’s price will exceed $100,000 by February 28th currently needs to pay approximately 0.112 Bitcoins, which is equivalent to $11,000 for a call option. Essentially, the derivatives market values Bitcoin at around $111,000 in less than 80 days from now.
It’s true that a decrease in Bitcoin futures open interest is promising, but it’s important not to jump to conclusions that all excessive optimism has vanished from the market. While it’s great to be hopeful, especially with President-elect Donald Trump’s inauguration coming up on Jan 20th, it’s crucial to remember that cryptocurrency traders frequently use leverage. This means that typical price fluctuations can lead to unforeseen volatility in the market.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of CryptoMoon.
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2024-12-10 22:18