Bitcoin price falls below $19,000 as data shows professional traders are avoiding leverage longs
A surprise price correction of $860 on September 6 took Bitcoin (BTC) from $19,820 to $18,960 in less than two hours. The move caused $74 million in Bitcoin futures liquidations on derivatives exchanges, the largest in nearly three weeks. The current $18,733 level is the lowest since July 13 and marks a 24% correction from the rally to $25,000 on August 15.
It is worth highlighting that a 2% pump towards $20,200 occurred in the early hours of September 6, but the move was quickly muted and Bitcoin resumed trading near $19,800 within an hour. Ether’s (ETH) price action was more interesting, gaining 7% in the 48 hours before the market correction.
Any conspiracy theories regarding investors changing their position to favor the altcoin can be dismissed as Ether fell 5.6% on September 6, while Bitcoin’s loss of $860 represents a change of 3.8%.
The market has been in a bit of a mess since August 27 comments by US Federal Reserve Chairman Jerome Powell were followed by a loss of $1.25 trillion in US stocks in a single day. At the annual Jackson Hole Economic Symposium, Powell said that bigger rate hikes were still on the table, causing the S&P 500 to close down 3.4% that day.
Let’s take a look at crypto derivatives data to understand if investors have priced in higher odds for a decline.
Pro traders have been bearish since last week
Retail traders usually avoid quarterly futures because of their price difference from the spot markets. Nevertheless, they are professional traders’ instruments of choice because they prevent the fluctuations in funding rates that often occur in a perpetual futures contract.
In healthy markets, the indicator should trade at an annual premium of 4% to 8% to cover costs and associated risks. So it’s safe to say that derivatives traders had been neutral to bearish over the past month because the Bitcoin futures premium stayed below 3% the entire time. This data reflects the reluctance of professional traders to add to leveraged long (bull) positions.
One must also analyze the Bitcoin options markets to exclude externalities specific to the futures instrument. For example, 25% delta bias is a clear sign when market makers and arbitrage tables are overcharging for upside or downside protection.
In bear markets, option investors place higher odds on a price dump, causing the bias indicator to rise above 12%. On the other hand, bullish markets tend to drive the bias indicator below negative 12%, which means that the bearish put options are discounted.
30-day delta bias had been above the 12% threshold since September 1, options signal traders were less inclined to offer downside protection. These two derivative calculations suggest that the September 6 Bitcoin price dump may have been partially anticipated, explaining the low impact on liquidations.
By comparison, Bitcoin’s $2,500 fall on August 18 caused $210 million worth of leveraged long (buyer) liquidations. Still, the prevailing bearish sentiment does not necessarily translate into adverse price action. Therefore, one should tread carefully when whales and market makers are less inclined to add leverage longs and offer downside protection using options.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk. You should do your own research when making a decision.
