The Bitcoin (BTC) price dropped 7% on July 8 to retest the $53,354 level, causing minor damage to bulls as $62 million of leveraged longs were liquidated. However, the bears were caught off guard when the price rose 7% to $58,215 in less than 8 hours, forcing $96 million of shorts to close.
Bitcoin’s brief intraday plunge spooks short sellers
On July 8, the Bitcoin price returned to the same level as 24 hours ago, at $57,200. This liquidation data suggests that institutions that bet on the price decline, which increased the open interest by $6,350 on July 7, used high leverage equivalent to $355 million. Perhaps more than 20x. The price increase on July 8 wiped out all the profits from the open interest.
This data helps explain why BTC derivatives continue to show moderate strength, creating a positive outlook for a recovery to $60,000 soon.
Crypto analysts believe that the German government’s transfer of 16,308 BTC to market makers and exchanges over the past 24 hours is a major factor in reducing Bitcoin traders’ appetite. However, this incident also provides a silver lining for the bulls, as they have already sold half of the confiscated coins, indicating that selling pressure is easing.
According to trader and influencer RookieXBT, Bitcoin investors are likely to wait to add to their positions until the German government is almost done selling. Additionally, the potential sale of the Mt. Gox bankruptcy estate, which would distribute coins after 10 years, could have an impact on the market. On the other hand, RookieXBT points out that the failed FTX exchange is expected to distribute cash to investors affected by the bankruptcy, which could be used to buy cryptocurrencies.
The rest of the analysis is highly controversial and focuses more on the longer term, including the US central bank’s shift to expansionary monetary policy and the US presidential election results. Also, the ongoing stock market rally, which hit another all-time high on July 8, is often overlooked by analysts, despite the fact that companies are holding a record $4.11 trillion in cash and cash equivalents, according to Bloomberg.
The S&P 500 benefits from the high margins of technology companies and offers a relatively safe investment with dividends and potential market consolidation. Even in a slow economy, some cash-rich companies will be able to buy out competitors and expand their operations at lower costs. In essence, a weak jobs market partially offsets the recessionary environment as companies compete less for hiring.
Bitcoin Derivatives Show Resilience, But Macroeconomic Conditions Remain Uncertain
In addition to factors such as the German government’s Bitcoin liquidation and potential FTX redemption, additional support for Bitcoin’s strength comes from the futures and options markets. In stable market conditions, monthly contracts typically trade at a 5% to 10% premium over spot markets due to the longer settlement period.
According to data from Laevitas.ch, the annual premium for BTC futures has stabilized at close to 8% since July 7. Despite the indicator suggesting a deterioration in sentiment, it remains at a relatively positive neutral level considering Bitcoin’s price has fallen 11% in the past seven days.
Related: Bitcoin Weakness Surges Digital Asset Inflows to $441 Million
Analyzing the options market can provide insight into dynamics. In a market that is optimistic about price increases, a delta skew of -7% is typically seen, as put (sell) options become cheaper than similar call (buy) options. Conversely, a skew indicator of 7% or more typically indicates fear of an imminent price correction.
The current -2% skew in the Bitcoin options market reflects healthy market sentiment, especially as BTC prices approach their lowest levels in four months. However, given the FUD associated with miner selling pressure and the potential negative impact on Bitcoin if a recession is confirmed, it is uncertain whether the $55,000 support level will hold.
This article is for general information purposes only and is not intended to be, and should not be taken as, legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.