As a seasoned researcher with over a decade of experience in analyzing financial markets, I’ve seen my fair share of market volatility, but the Dec. 5 Bitcoin flash crash was an event that left me scratching my head. The $12,396 intraday price swing was breathtaking, and the rapid rebound was reminiscent of a rollercoaster ride.
On December 5th, Bitcoin (BTC) demonstrated extraordinary daily price fluctuations, with a notable swing of around $12,396 that led to a record low of approximately $91,463. This volatility resulted in the liquidation of over $4 billion in BTC futures contracts, exceeding the previous high set during FTX’s bankruptcy in November 2022. Analysts have suggested this figure.
During the flash crash on Dec. 5, what caught everyone’s attention was the rapid recovery of around $5,160 in less than 15 minutes following the low point, which occurred due to active buyers defending the $96,500 support level. Additionally, Bitcoin derivatives data continued to reflect a bullish outlook, suggesting that traders remain optimistic about the continuous bullish trend.
Bitcoin margin, futures and options markets show resilience
Assessing the general opinion in the market about Bitcoin is best done by examining its margin markets carefully. Unlike traditional derivative contracts that need both buyers and sellers, these margin markets allow traders to take out loans in stablecoins to buy immediate Bitcoin or borrow Bitcoin to open short positions, betting on a decrease in price.
At the moment, the Bitcoin leverage ratio for long (buy) positions versus short (sell) positions on OKX is set at 20 times. In the past, when traders exhibit overconfidence, this ratio can exceed 40 times. Conversely, ratios below 5 times that favor long positions are often seen as bearish signals.
To find out if major investors, often referred to as “whales,” have changed their views after the rejection at the $103,500 level, data from Bitcoin futures markets is crucial. By analyzing the ratio of long positions held by top traders over spot, perpetual, and monthly contracts, we can consolidate their positions. A higher ratio means these professional traders favor long positions (buy), while a lower ratio implies they are more inclined to sell (short) contracts.
At present, the long-to-short ratio on Binance is 1.65, comparable to levels from two days prior and surpassing the two-week average of 1.52, indicating a preference for long positions. Meanwhile, top traders at OKX have become increasingly bullish, with their long-to-short ratio increasing from 1.15 to 1.37 within the same timeframe. These ratios at both Binance and OKX suggest a significant bias towards optimistic bets overall.
Analyzing whether professional Bitcoin traders are showing too much self-assurance is essential, and data from the options market is crucial for this. The delta skew, at around 25%, plays a vital role as it reveals when arbitrage desks and market makers overcharge for protection in either rising or falling prices. In situations where traders expect a price decrease, the skew usually surges above 7%. On the other hand, if there’s excessive optimism, the skew tends to dip below -7%.
Based on information from Laevitas.ch, the 2-month Bitcoin options delta skew stands at -8%, which is similar to what was seen on October 4th. This negative skew suggests that traders are showing increased optimism because put options (sell) are being traded less expensively than call options (buy). This trend supports a bullish perspective, aligning with the positive views in both futures and margin markets.
Despite doubts about Bitcoin reaching its record high of $103,500 soon, derivative market signals suggest traders are quite optimistic. A drop in price to around $90,000 may occur, but this could be interpreted as typical profit-taking after Bitcoin’s significant 53% surge between November 5 and December 5.
This piece is meant to provide a broad understanding and isn’t meant to serve as legal or financial guidance. The perspectives shared within this text belong solely to the author and may not align with or reflect those of CryptoMoon.
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2024-12-07 00:31