Key Takeaways:
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Bitcoin options are at their worst fear in a yr as traders brace for the opportunity of a deeper sell-off.
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Bitcoin markets may very well be more stable as dangerous leverage positions are liquidated.
Bitcoin (BTC) experienced a pointy 10% correction between Wednesday and Thursday, retesting $81,000 for the primary time in over two months. The move got here as traders grew increasingly cautious following significant outflows from Bitcoin exchange-traded funds (ETFs), particularly as gold prices fell 13% from Wednesday's all-time high.
The sharp price changes caused traders to query the strength of the psychological support level at $80,000.
Daily net inflows of spot Bitcoin exchange-traded funds, USD. Source: CoinGlass
US-listed spot Bitcoin ETFs have seen net outflows of $2.7 billion since January 16, representing 2.3% of total assets under management. Some market participants fear that institutional demand has stalled, while others indicate that gold's 18 percent rise over three months may temporarily overshadow Bitcoin's appeal as a store of value. Regardless of the precise trigger for the decline, the market's perception of risk has increased significantly.
The threat of quantum computing is adding to the fears of Bitcoin investors
A significant concern is the potential threat that quantum computers pose to the cryptographic methods used to secure blockchains. Coinbase recently formed an independent advisory board to evaluate these risks and plans to publish public research results by early 2027. This initiative is operated independently of the corporate's core management.
The debate intensified after Jefferies removed Bitcoin from its flagship portfolio, citing these long-term security concerns. However, cryptographer and Blockstream co-founder Adam Back predicted that there could be no significant quantum risk in the subsequent decade. Back argued that the technology remains to be at a really early stage and even partial breaks in cryptography wouldn’t allow Bitcoin to be stolen.
Bitcoin options turn bearish
The BTC options delta skew rose to 17% on Friday, reaching its highest level in over a yr. In neutral market conditions, put options (put options) typically trade at a premium of 6% or less in comparison with equivalent call instruments (buy options). Current levels indicate extreme fear, which regularly ends in volatile price swings as market makers hedge against further downside.
BTC 2-month options delta skew (put call) at Deribit. Source: laevitas.ch
About $860 million in leveraged long BTC futures positions were liquidated between Thursday and Friday, suggesting many traders were caught off guard. However, it may be inaccurate to attribute the crash solely to leverage; Total open interest in BTC futures actually fell to $46 billion on Thursday, in comparison with $58 billion three months ago.
Total open interest in BTC futures, USD. Source: CoinGlass
Declining interest in leveraged futures isn’t all the time a bearish signal. The market is healthier now that excessive debt has been eliminated. To higher assess risk appetite, analysts often take a look at demand for stablecoins in China. When investors rush to exit the crypto market, this indicator often falls below parity.
Tether (USDT/CNY) vs. US Dollar/CNY. Source: OKX
Typically, stablecoins trade at a premium of 0.5% to 1% to the US dollar/yuan exchange rate. The current 0.2% discount suggests moderate outflows, although this represents a slight improvement from the 1% discount last week. Ultimately, Bitcoin derivatives reflect cautious sentiment after the value fell 13% within the last 14 days.
Whether Bitcoin can reclaim $87,000 and regain upward momentum likely depends upon investors recognizing that no asset is proof against corrections if macroeconomic and sociopolitical concerns result in a sudden surge in demand for money and short-term U.S. Treasury bonds.
This article doesn’t contain any investment advice or recommendations. Every investment and trading activity involves risks and readers should conduct their very own research when making their decision. While we attempt to supply accurate and up-to-date information, Cointelegraph doesn’t guarantee the accuracy, completeness or reliability of the data in this text. This article may contain forward-looking statements which might be subject to risks and uncertainties. Cointelegraph won’t be answerable for any loss or damage arising out of your reliance on this information.
