Bitcoin has started 2021 with a stark reminder that volatility is the norm, and the relentless rally of the last month can quickly be eroded. Today, as the market broke through key support, auto-liquidations kicked in and swept aside $31,000, $30,000, $29,000, and $28,000 in a matter of minutes.
Liquidation on BitMEX saw over $100M of leveraged positions receive immediate notice of closure before prices recovered.
Considering the majority of action in the options market this morning was driven by the purchase of downside protection, it's not a complete surprise to see the market let off some steam.
We have seen options open interest explode since the Christmas day expiry, with exposure just shy of $8B's worth of exposure now in the hands of traders. The highest level we reached in 2020 was $6.8B.
It's not just options volumes and open interest that are registering large gains. The perpetual market, which is primarily the reason for today's sell-off, has also seen growth in volumes...
...Along with a healthy increase in open interest, until today at least.
The volumes across all products are pushing all-time high's as interest in Bitcoin, driven by its stellar 2020 performance, continues to attract trader's attention.
So what of those other participants who have a very particular interest in Bitcoin - miners?
As the chart below demonstrates, the miners position index sits firmly above 2 and indicates that, on average, this rally is being sold as miners lighten positions.
There is one other group who appear to be selling into the recent rally. Wallets with a balance greater than 10 Bitcoin continue to reduce.
I have a feeling today is just a warm up for what is going to be an interesting start to 2021!
Bitcoin broke down through the $32,300 level today and triggered a cascade of auto-liquidations that drove price down to $27,678. A quick recovery saw support at $28,900 hold, before the bulls regained composure and moved prices back above $31,000.
Today's price action is a reminder that anything can happen in Bitcoin, and within moments. Support at $29,980 will now be closely watched, and a break lower will see us revisit $28,900 before the key support at $28,000 comes under fire.
On the upside, a move back to $32,300 is the first target. A push higher will take us up towards $33,860 as the prospect of another new all-time high remains on the backburner - for today at least.
It looks like crypto isn’t correlated to traditional markets, at least not during this past session.
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