The move resulted in $285 million of leveraged long (bull) positions being liquidated, leading some traders to speculate on a potential downside of $13,800.
As described by independent market analyst Jaydee_757, the downtrend continues to exert pressure, with $17,200 as resistance. However, such an analysis does not provide any guarantee that the price will eventually bottom at $13,800.
Oddly enough, the price action coincided with improved global stock market conditions on Oct. 4, with the S&P 500 up 6.4% between Nov. 10 and Nov. 11, and the heavy Nasdaq Composite up 9.5%. Hence, at least from a technical perspective, Bitcoin has completely decoupled from traditional finance.
More uncertainty about Bitcoin was brought by Grayscale Bitcoin Trust shares trading on OTC stock markets after the fund’s $11.4 billion discount on its assets exceeded 40%.
As noted by Vance Spencer, the implied price of BTC according to fund trading is below $9,000, and the pressure should continue if some holders use their equity as collateral for loans.
However, the negative sentiment that caused bitcoin to break below $20,000 does not mean professional investors are bearish at the current price levels.
Margin traders have not closed their long positions
Monitoring the margin and options markets provides excellent insight into how professional traders position themselves, allowing investors to borrow cryptocurrencies to leverage their trading position.
For example, an individual can increase exposure by borrowing stablecoins to purchase an additional bitcoin position. Bitcoin borrowers, on the other hand, can only short the cryptocurrency because they are betting that its price will fall. Unlike futures contracts, the balance between long positions on margin and short positions is not always identical.
OKX USDT/BTC margin lending ratio. Source: OKX
The chart above shows that the margin lending ratio for OKX traders increased from November 8 to November 10, indicating that traders did not close their long positions despite the 25.4% price correction.
Moreover, the metric continues to favor stablecoin borrowing by a wide margin, indicating that traders were holding bullish positions.
The options markets have flipped lower
Traders should examine the options markets to understand if Bitcoin can regain the $18,500 support. A delta deviation of 25% is a significant sign when arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar buy (buy) and sell (sell) options and will turn positive when fear spreads because the premium of protective call options is higher than risk call options.
The divergence indicator will move above 10% if traders are afraid of a collapse in the price of Bitcoin. On the other hand, generalized arousal reflects a negative bias of 10%.
Bitcoin 60-day options 25% delta skew: Source: Laevitas
As displayed above, the 25% delta deviation has been less than 10% since October 26, but quickly moved above that limit on November 8, indicating that options traders were seeking higher risk of unexpected price swings.
When this metric stands above 10%, it indicates that traders are scared and reflects a lack of interest in offering downside protection.
Related: Crypto.com’s CRO Is In Trouble, But There’s A 50% Rebound In Price
FUD expulsion does not happen overnight
Despite the bearish Bitcoin Options Index, OKX’s margin lending rate showed that whales and market makers are maintaining bullish bets. Fear of contagion may explain the mixed sentiment as investors struggle to explain recent moves by the Crypto.com exchange, including the ‘accidental’ transfer of 320,000 ether.
Analyst Holger Zschaepitz’s post describes the current investor sentiment that they are unwilling to take risks on centralized exchanges offering similar products and services from the now bankrupt FTX.
Hence, derivatives reflect low confidence in reclaiming the $18,500 support until more data shows that the cryptocurrency ecosystem liquidity has been restored.