Home News 3 reasons why Bitcoin’s (BTC) drop to $56.5K may have been the...

3 reasons why Bitcoin’s (BTC) drop to $56.5K may have been the local bottom


“Expect the unexpected” is the first rule of Bitcoin (BTC) trading. There have been five occasions in the last year alone when day gains of 20% or more have occurred. In addition, there have been five intraday drawdowns of 18%. To be honest, compared to recent peaks, the volatility over the last three months has been rather low.

Bitcoin historical 90-day annualized volatility. Source: TradingView

Traders new to Bitcoin (BTC) are typically fascinated by a 19% drop following a local high, whether they are multibillion-dollar institutional fund managers or ordinary investors. Many people are surprised that the recent $13,360 correction from the all-time high of $69,000 on November 10 took only nine days.

There were no worrisome liquidations as a result of the downward shift

Cryptocurrency traders are infamous for using huge leverage, and roughly $600 million worth of long (buy) Bitcoin futures contracts have been liquidated in the last four days alone. Although this appears to be a respectable figure, it only accounts for about 2% of all BTC futures markets.

Bitcoin futures aggregate open interest. Source: Coinglass.com

The lack of a big liquidation event despite the steep price fall is the first signal that the 19% decline down to $56,000 indicated a local bottom. If there was significant buyer leverage at play, which is a symptom of an unstable market, open interest would have changed dramatically, similar to what happened on Sept. 7.

The risk gauge in the options markets remained stable

Investors should examine the 25% delta skew to discover how concerned professional traders are. By comparing similar call (buy) and put (sell) options side by side, this indicator gives a trustworthy assessment of “fear and greed” attitude.

When the premium for neutral-to-bearish put options is larger than the premium for comparable-risk call options, this indicator will turn positive. This is frequently referred to as a “fear” situation. Bullishness, or “greed,” is shown by the opposite tendency.

Bitcoin 30-day options 25% delta skew. Source: Laevitas.ch

Nothing out of the usual happened during the recent $56,000 support test, which had values between negative 7% and positive 7%. If pro traders and arbitrage traders had spotted increased dangers of a market crash, this indicator would have risen beyond 10%.

Margin trading allows investors to borrow crypto to increase the size of their trading position and hence their profits. For example, borrowing Tether (USDT) and expanding one’s exposure can be usable to acquire cryptocurrencies. Borrowers of Bitcoin, on the other hand, may only short it, implying that they are betting on a price drop.

Margin longs and shorts aren’t always identical, unlike futures contracts.

OKEx USDT/BTC margin lending ratio. Source: OKEx

The accompanying graph reveals that traders have been borrowing more USDT recently. As the ratio has risen from 7 on November 10 to 13. Because the indicator favours stablecoin borrowing by 13 times, the data is optimistic. This might represent their favourable exposure to the Bitcoin price.

Despite the latest BTC price decline, all of the following indicators have shown resiliency. Anything may happen in crypto, as previously said, but evidence from derivatives suggests that $56,000 was the local low.

Bitcoin buyers who purchased at $20K are refusing to sell at all-time highs

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