With the price of Bitcoin dropping as low as $ 47,450 and losing over 8% in the past three days, the anticipation of a New Years rally seemed to dry up. A move below the $ 50,000 support triggered a sale, followed by a further drop in price below the $ 48,000 support, which was Bitcoin trading at the time of writing.
Ahead of 124.7,000 options contracts expiring on Friday, the recent break below $ 48,000 could lead the top asset one way or another.
Option market heated
The combined trading volume of Bitcoin and Ethereum options rose + 443% in 2021 to $ 387 billion for the year ended December 27. Last year, BTC and ETH options saw combined trading volumes of over $ 71 billion.
Source: TheBlock
In the last week alone, OI has seen an increase of roughly $ 2.5 billion, largely led by traders on Binance. While the futures OI is still far from all-time highs, rapid increases in leverage can indicate an accumulation of stop-loss and liquidation levels in close proximity to current price.
Glassnode’s data also showed how this increase in leverage may add higher probabilities to a potential short or long squeeze in the near future.
Source: Glassnode
A general decline in trading volume can usually be observed towards the end of the year, but on a 7-day average the volume of the futures market has declined by 16% since the beginning of the year. Thinner volume and increasing OI in a concentrated exchange is a combination that may be beneficial to at least one localized leverage squeeze in the coming weeks.
With the BTC leverage ratio at the ATH level, there was an opportunity for a correction to flush out all of the excess leverage as prices collapsed.
Source: CryptoQuant
HODLers are still stuck
Historically, the market posted a 32% loss in July to a low of $ 29,000, while 26% of BTC supply is currently in “losing” territory. Nonetheless, some long-term owners have not touched their BTC in over five years, with over 23% of BTC’s $ 21 million supply remaining untouched during that period.
For now, long-term owners have trimmed their BTC positions slightly over the past few weeks, even though prices have fallen nearly $ 20,000, or -24.4%, since the BTC ATH. The supply of investors fell from 13.4 million only to 13.3 million, a slight change compared to the sharp drop in prices.
Source: Glassnode
Analyst Rekt Capital highlighted Bitcoin’s re-visit to the 21-week EMA, where the coin was rejected. In the past, BTC has pulled down wicks into the orange area during this red retest, so there is a chance of revisiting the lower $ 44,000 level unless the 21-week EMA is set as a short-term support.
If the range between $ 40,000 and $ 42,000 is retested it could likely turn to a local low in the medium term, but for now BTC price could hit lower levels with the end of the year and the possibility of leverage in the coming days.
Comments are closed.