Today’s $1.6 billion Bitcoin liquidation event might have flushed out some over-leveraged retail investors, but the overall market is still positioned in favor of bulls.
Bitcoin’s (BTC) sudden $11,500 drop liquidated more than $1.64 billion worth of BTC futures contracts. This massive figure represents 8.5% of the total $19.5 billion in open interest, which coincidentally had just reached its all-time high.
Although these are significant figures, they are proportionally lower than the $1-billion futures liquidation on Nov. 26, 2020. At that time, the 16% correction that followed Bitcoin price testing a $16,300 low reduced the open interest by 17%.
In light of today’s big price move, investors’ positive expectations regarding Bitcoin remain unfazed, as both the futures contracts funding rate and the options 25% delta skew are not flashing any red flags.
Open interest dropped by 8%
As the chart above shows, negative price swings and reductions in BTC futures open interest do not impact Bitcoin’s long-term growth. Between Jan. 19 and 23, the indicator fell by 20%, but it only took only two weeks to recover to the $13 billion level.
Open interest will vary more aggressively when traders are using excessive leverage. When this occurs, normal price fluctuations will cause cascading liquidations, reducing the outstanding number of open contracts.
Contango held steady, indicating a healthy market
By measuring the futures contracts premium against the current spot levels, one can infer whether professional traders are leaning bullish or bearish. Typically, markets display a slightly positive annualized rate, a situation known as “contango.”
Although the premium toned down after touching 5.7% on Feb. 17, it has since dropped down to 3.5%, which is average. Considering that there are 31 days left for the March 26 contract expiry, this translates to an extremely bullish 50% annualized rate.
As previously reported by Cointelegraph, the perpetual contracts funding rate has exceeded 2.5% per week. Therefore, arbitrage desks are likely paying a hefty premium on March contracts to profit from the rate difference.
The options market’s 25% delta skew remains bullish
The 25% delta skew measures how the neutral-to-bullish call options are priced against equivalent bearish put options.
The indicator acts as an options traders’ fear and greed gauge, and it is currently sitting at -6%, meaning protection to the upside is more expensive. This further confirms the absence of desperation from market makers and top traders.
Key indicators continue to favor bulls
Today’s price action might be surprising to new market participants, but those who remember when Bitcoin’s price crashed $11,200 between Jan. 10 and 11 will know that these sharp movements can’t be deemed out of the norm, especially considering Bitcoin’s six-day volatility at 5.1%.
The data suggests that traders buying today’s dip will likely come out on top. Bitcoin’s positive newsflow and the growing interest of institutional investors growing in BTC will likely just intensify after today’s $48,000 retest.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.
