With a staggering 16.1% increase in value from October 22 to October 24, the prevailing sentiment on social media may have you believe we are on the cusp of a bull market renaissance.
But, let’s dissect the derivatives data and cut through the hype to understand what is truly transpiring behind the scenes.
Unmasking the Shorts: A Tale of Liquidation
Amidst this tumultuous rally, futures contracts traders on the bearish end of the spectrum found themselves in a whirlwind of liquidations, with losses amounting to $230 million.
A noteworthy deviation in Bitcoin’s open interest unfolded, highlighting a total number of futures contracts in play and indicating that short-sellers were blindsided, yet not caught in a web of excessive leverage.
In the heat of the rally, Bitcoin futures open interest swelled from $13.1 billion to a substantial $14 billion. This contrasts starkly with the events of August 17, when a 9.2% price plummet in a mere 36 hours led to $416 million in long liquidations.
During that chaotic episode, Bitcoin’s futures open interest shrunk from $12 billion to $11.3 billion. The current scenario fortifies the gamma squeeze hypothesis circulating in the market, suggesting market makers found themselves in a chase against stop losses.
Deciphering the Theories: CZ’s Alleged Maneuvers and Gamma Squeeze
Bitcoin, in its enigmatic glory, has sparked various theories attempting to explain its price movements.
A user named M4573RCH on a certain social network has thrown in a wild card, insinuating that Changpeng “CZ” Zhao might have orchestrated a strategic play using BNB as collateral on Venus Protocol, a decentralized finance platform.
The speculated maneuver involved selling Bitcoin to bolster BNB’s price, subsequently buying back Bitcoin with BNB to recalibrate the positions.
However, these speculations, much like the intricate gamma squeeze narrative, remain unverified conjectures, with the market’s entities shrouded in mystery.
Derivatives Data: Decoding the Bull Run’s Health
To gauge the health of this unexpected bull run, a deep dive into Bitcoin derivatives metrics is imperative. Typically, Bitcoin monthly futures exhibit a 5% to 10% annualized premium compared to spot markets, a testament to the sellers’ demand for additional compensation to delay settlement.
On October 24, the futures premium hit a commendable 9.5%, the highest in over a year, breaking the 5% neutral threshold and ending a 9-week bearish dominance.
A glance at the Bitcoin options markets sheds light on the traders’ sentiments and expectations. The delta 25% skew, a critical indicator, shifts to positive territory during bearish anticipation and dips below negative 7% amidst bullish fervor.
From a neutral stance on October 19, it plummeted to -18% on October 22, signaling extreme optimism. However, it currently hovers at -7%, indicating a balanced demand between call (buy) and put (sell) options, and allaying fears of excessive leverage.
Bitcoin’s journey to $35,000 is laden with speculation, intrigue, and a plethora of theories.
Despite the rampant speculation, particularly regarding the approval of a spot Bitcoin ETF, the derivatives data paints a picture of a healthy market, teeming with fresh funds and justifying aspirations for a rally beyond the $35,000 threshold.
As we navigate these tumultuous waters, it is crucial to remain grounded, critical, and vigilant, ensuring that we separate the signal from the noise in this high-stakes crypto odyssey.