Bitcoin approaches its former ATH
The price of Bitcoin (BTC) invalidates the $30k-$28k zone and approaches the symbolic $20k level (former ATH), leading to a drop in the overall profitability of the network and important losses on spot and derivatives markets.
This drop in price is accompanied by an increase in speculative risk on the derivatives markets, auguring a potential further cascading series of liquidations.
Figure 1: Daily price of Bitcoin (BTC)
This week, we will closely assess:
- the evolution of speculative risk over the past few weeks;
- the extent of loss taking on spot markets;
- market entry into a historically attractive price zone.
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Heavy speculation deep in the bear market
Let’s start with current activity in the financial markets, where we can see many signs of increased speculative activity.
First, the open interest (OI) of Bitcoin futures, measured in BTC, is in constant increase since the beginning of Maydropping from 373,000 BTC to an ATH of 486,000 BTC on Monday evening.
Since losing the $30,000 level last Wednesday, OI has negatively correlated with the price of BTC and is up over 11%, signaling a significant speculative interest.
The cascade of liquidations caused during the last 24 hours was not enough to purge the excess leverage present on the derivatives markets.
Figure 2: Bitcoin Futures Open Interest
Moreover, when the price of BTC reached $24,000, a Futures Funding Rate Divergence manifested itself: while Kraken, Deribit, FTX and BitMex adopted a short bias, Bitfinex suddenly became very bullish.
This divergence signals a conflict of interest between bullish and bearish speculators that can only be resolved by de-escalation of their position (return to reason) or their liquidation (purge of greed).
The average financing rate is currently -0.012%, showing a global appetite for short positions.
Figure 3: Futures Funding Rates
In parallel, futures trading volume more than tripledgoing from 1.33Mn BTC to 4.98Mn BTC in less than 24 hours.
This increase in effervescence caused by the fall in the spot price on the derivatives markets, causes a feedback loop between
- liquidations of long positions;
- forced stop losses at the close;
- selling pressure from short positions.
Largely exceeding the volumes recorded during the Terra/LUNA crash, this measure testifies to the paramount influence of the derivatives markets on the recent drop.
Figure 4: Bitcoin futures volume
As a result of the debacle caused by the factors observed above, a series of sell-offs in the derivatives markets caused more than 300 million dollars in losses in 24 hours.
Confirming the fact that this decline is more influenced by derivatives markets than a month ago, this observation does not exclude the possibility of a deeper fall in the next few days.
Figure 5: Bitcoin futures long liquidations
Indeed, the still high OI, the long positions on Bitfinex, as well as the growing margin call risks of companies such as MicroStrategy and Celsius point to a possible bloodbath to come if conditions deteriorate further.
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Heavy losses on the spot markets
Added to these observations is a painful series of losses made on the hourly scale. Much higher than the losses recorded on May 10 and 13 (~$150Mn), yesterday’s fall caused a consequent sale of up to 214 million dollars per hour.
This indicator of the extent of the panic created by the verticality of the BTC price action over the past few hours speaks to the willingness of participants to (sometimes force) sell long positions.
Historically, spot markets had not seen a similar sell-off since June 25, 2021where nearly $300 million in losses were incurred
Figure 6: Distribution of Supply by Cohort and Change over 30 days
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A generational buying opportunity
The cascade of liquidations described above, added to the selling pressure of the spot markets, pushes the price of BTC into its entrenchments, close to its former ATH, towards a area of very attractive value from a long-term point of view.
The MVRV Z-Score, used to assess when Bitcoin is over/undervalued relative to its “fair value”, suggests that the market today is significantly undervalued.
Figure 7: Distribution of Supply by Cohort and Change over 30 days
This meaningful and historically significant signal records negative values (in green) for the 6th time in its history, confirming that we are entering a territory conducive to the construction of generational savings.
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Summary of this on-chain analysis
Finally, this emotional week will have marked the entry of the price of Bitcoin (BTC) into a statistically attractive price zone.
Following yesterday’s cascade of liquidations, and considering the losses realized on the spot markets, we can say that we are closer to the end of the bear market than to its beginning.
However, given a deteriorating macroeconomic and geopolitical context, the persistence of speculative risk and the latent losses still held by participants, now is not the time to take unnecessary risk.
Note to conclude the margin call risks incurred by Celsius and MicroStrategyat liquidation prices of $14k and $21k respectively, the advent of which could cause unprecedented selling pressure worthy of the Mt. Gox and Terra/LUNA business debacles.
Sources – Figures 1 to 7: Glassnode, Figure 5 : Coinglass
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