Bitcoin in Free Fall, But Market Calls $111K in February

The Bit price has witnessed two liquidation events exceeding $1 Billion in the Futures Contract market since December 5th, although its price started and ended around $97,000. The most recent event pushed Bit from $101,430 on December 8th to $94,200 on December 9th, a shock that wiped out $2.9 Billion in leveraged positions. While the short-term negative impact on sentiment, the Bit Derivative market is now in a much healthier state, which is exactly what is needed for a surprise surge to new record highs. Traders are less likely to buy in signs of an overheated market, such as an excessive perpetual contract funding rate. The total open interest in Bit Futures Contracts decreased 8% from November 25th to December 10th, from 663,700 BTC to the current 609,400 BTC. However, despite a $7,160 price drop in 24 hours on December 9th, the demand for leverage was not significantly affected. The funding rate peaked at 9% per month on December 5th but has essentially stabilized since the price dropped to $94,200 on December 9th, flushing out the excess retail leverage that often causes cascading liquidations. The violent Bit price fluctuations have excited the steps of newcomers and reduced the investment appeal. However, the reduction in leverage provides more confidence to investors that the recent increase stems from accumulation, especially from institutional investors.

Bit Sees Growth Potential as ETF Inflows Challenge Short-Term Concerns

Traders are concerned that Bit price may drop after a 72% gain in three months, but this short-term analysis does not consider that US-based Bit ETFs have added $15.2 Billion in assets since October 10th, indicating strong demand. MicroStrategy, Riot Platforms, and Marathon Digital (MARA) have been active Bit buyers in recent weeks. From December 2nd to December 8th, MicroStrategy bought 21,550 BTC at an average price of $98,783 per Bit, totaling $2.1 Billion. Meanwhile, the mining company Riot Platforms increased its debt by $500 Million, primarily for Bit purchases. MARA has also significantly increased its assets, adding 11,774 BTC to its balance sheet during the same period. Unlike retail traders, whales and market makers remain optimistic as Bit's monthly Futures Contracts trade at a premium of over 15% to the spot market price. Traders demand extra compensation for the longer liquidation period, so a 5% to 10% insurance premium is typically considered neutral. Even though the annual insurance premium on December 5th was 21%, an excessive level, the current rate is not different from two weeks prior, so any trigger for a temporary increase in leverage demand is no longer present. From a Derivative perspective, this scenario provides room for additional upside positioning, supporting further price appreciation. To demonstrate that trading experts have not turned bearish, a trader intending to bet that Bit will exceed $100,000 by February 28th currently has to pay 0.112 BTC, equivalent to $11,000, for a Call Option. Essentially, the Derivative market is pricing Bit at $111,000 in less than 80 days. The decline in Bit Futures Contract open interest is certainly a positive sign, but it would be naive to declare that excessive optimism has been flushed out of the market. While there is nothing wrong with being optimistic, especially with the President-elect Donald Trump's inauguration expected on January 20th, Cryptocurrency traders often rely on leverage, so normal price fluctuations can cause unpredictable volatility. Compiled by Tin Tuc Bitcoin