An unexpected plummet of $860 in price on Sept. 6 saw Bitcoin’s value dip from $19,820 to $18,960 in a span of just two hours. This sudden movement led to $74 million in liquidations of Bitcoin futures at derivative exchanges, marking it as the largest in nearly three weeks. The current value of $18,733 stands as the lowest since July 13, showcasing a 24% decline from the peak of $25,000 on Aug. 15.
On early Sept. 6, there was a brief 2% surge pushing Bitcoin towards $20,200, however, the rise was short-lived as Bitcoin quickly returned to trading around $19,800 shortly after. Ether (ETH) displayed a more notable price action, climbing 7% in the two days leading up to the market correction.
Dismiss any speculations suggesting a shift in investor sentiment favoring altcoins as Ether saw a 5.6% drop on Sept. 6, whereas Bitcoin’s $860 decline represented a 3.8% decrease.
The market has been somewhat stagnant since Aug. 27 following statements made by U.S. Federal Reserve Chair Jerome Powell, which subsequently led to a $1.25 trillion decline in the U.S. stock market in a single day. Powell’s mention of the possibility of interest rate hikes caused a 3.4% drop in the S&P 500 index on that day during the annual Jackson Hole Economic Symposium.
Professional Traders Show Bearish Sentiment Since Previous Week
In comparison to retail traders who typically avoid quarterly futures due to price disparities from spot markets, professional traders favor these instruments as they help avoid variations in funding rates commonly seen in perpetual futures contracts.
In a healthy market scenario, the indicator should exhibit a 4% to 8% annualized premium to cover costs and risks. With the Bitcoin futures premium remaining under 3% throughout the past month, it is evident that derivatives traders have been leaning towards a neutral to bearish stance, showing a reluctance to engage in leveraged long positions.
Aside from futures data, analyzing Bitcoin options markets helps exclude external factors specific to futures instruments. The 25% delta skew, for instance, provides insights into situations where market makers and arbitrage desks may be overpricing upside or downside protection.
During bear markets, the skew indicator tends to rise above 12%, reflecting increased probabilities of a price decline. Conversely, bullish markets drive the skew indicator below negative 12%, indicating discounted bearish put options.
Since September 1, the 30-day delta skew has remained above the 12% threshold, indicating a decreased interest from options traders in offering downside protection. These metrics in derivatives imply that the price drop on Sept. 6 was somewhat anticipated, thereby resulting in fewer liquidations.
For reference, the $2,500 drop in Bitcoin value on Aug. 18 led to $210 million worth of liquidations from leveraged long positions. Despite the prevailing bearish sentiment, it does not necessarily translate to negative price movements. Hence, it is important to exercise caution when large investors and market makers are refraining from leveraged positions and protection measures through options.
